David Rosenberg: this is a “Potemkin market”

published 13 August 2019

David Rosenberg, chief economist and strategist for Gluskin Sheff © Misha Friedman/Bloomberg via Getty Images

This is a "Potemkin market", says David Rosenberg of Gluskin Sheff it might look normal on the surface, but dig deeper and it's anything but. Even "after ten years of free money" from central banks, "we are stuck in a deflationary debt trap", the oft-bearish analyst argues. This unpromising, disinflationary backdrop has helped to prop up equities, but only because low interest rates have enabled companies "to buy back their stock in droves and mask a downturn in corporate profits".

You need only look at the global bond market to see that we are in unprecedented territory. Around "$15trn [£12.4trn] of global investment grade bonds" now trades with a negative coupon (in other words, investors holding until maturity are guaranteed to lose money, in nominal terms at least). Meanwhile, "safe haven" assets such as gold, the Japanese yen and the Swiss franc are doing well indeed, the yellow metal has outperformed the S&P 500 so far this year while "risk-on" assets such as oil and iron ore have been hit by the "weakening global demand outlook".

Another sign that investors should be cautious? Warren Buffett has been pulling money out of stocks this year. During the three months to the end of June, the US investor's investment vehicle, Berkshire Hathaway, sold $1bn more worth of stocks than it bought, according to Bloomberg. So "someone out there with deep pockets recognises that the fundamentals' are not so great after all", notes Rosenberg.

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