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Notes to myself, possibly of interest to others.
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Thursday, June 4, 2009

Davd Rosenberg: Buy Gold, Bonds, Commodities... -- Not

Everyone is back in the same trade
  • Buy stocks (massive multiple expansion - S&P 500 priced for $75 operating EPS)
  • Buy commodities (still long-term bullish but a pullback is definitely overdue)
  • Buy non-Treasury bonds (same story as commodities - long-term bullish on corporates, but supply is now coming in droves and being gobbled up - this is NOT the contrarian trade of six-months ago)
  • Buy gold (again, in a secular bull phase, but the dollar is not going to zero and being bearish on the greenback has become far too fashionable - especially in the wake of Bill Gross's latest missive; the Euro is saddled with problems at least as deep as the USD, if not deeper)
  • And of course, sell Treasuries (that was a good trade coming off the 2% lows on the 10-year note, but what we just saw crammed into six months, which took 48 months to accomplish in the last bear market in govie bonds, was yields soaring 175bps from the low). Sentiment on government bonds is exceedingly bearish and inflation views have become too extreme for my liking. I believe there is a lack of appreciation from what history tells us about the aftershocks that occur after a cycle that was dominated by a credit collapse and asset deflation, as opposed to a garden-variety inventory-led recession. In five words: economic fragility, lingering deflation pressure...
The March-June period transcended the ‘backing away from Armageddon’ trade and recently morphed into a big reflation trade because of booming fiscal deficits and booming money supply growth...For markets, currencies, and asset classes in general, the second half of 2009 is likely to see a big shift in the other direction from what we have seen take place in the last three months, in my view. In a secular bear market, we have to take a more tactical view rather than strictly a strategic view and the latest run appears poised for a reversal.

David Rosenberg, 6.4.09 (requires free login)

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