Investors are repeating a big mistake they made before the 2008 financial crisis, says president of Rosenberg Research.
Renowned economist, David Rosenberg reported that he was witnessing market complacency on par with pre-crash levels. Within the following few quarters, the seasoned economist said, the US economy would enter a recession.
Red signals, in his opinion, include house and stock prices, debt levels, missed payments, and bank problems.
Rosenberg recently sent out a serious warning to investors, comparing their lack of readiness to the events leading up to the 2008 housing and financial crises.
The majority of Wall Street now predicts a “soft landing,” in which the Federal Reserve manages to bring inflation under control without wrecking the economy or driving up unemployment. In a memo this week headed “2007 Redux,” Rosenberg said that there was a similar atmosphere in 2007 when “the consensus and many market participants mistakenly assumed the recession would never come.”
Drawing various parallels between the two eras, the seasoned economist emphasized his belief that danger was on the horizon. In comparison to earnings and profits, he pointed out that homes and equities were more expensive now than they were during the height of the mid-2000s bubbles. He continued by saying that the level of debt in the shadow banking industry was dangerously high and that delinquencies on credit cards and auto loans were increasing.
Rosenberg emphasized that, just like the wave of bank failures this spring, the collapse of New Century Financial and Bear Stearns in 2007 were written off as separate, isolated instances. Furthermore, he noted that a number of economic indicators may not be as strong as they appear, given that many of them only turned weak eight months into the 2008 crisis.
The former head of Merrill Lynch’s North American economics division noted that government expenditure had supported consumer demand in the middle of the 2000s and contended that the pandemic stimulus had achieved the same result. In addition, he added that the rate cuts the central bank implemented in the summer of 2007 were insufficient to rescue the economy, and that throughout the past 18 months, the Fed has raised interest rates more aggressively than it did in the mid-2000s.
Investors at the time, according to Rosenberg, were “hook, line, and sinker” for the myth that the boom-bust cycle was over and a “new era” was beginning. He declared that history was being repeated and that a downturn in the US economy was imminent, one that most people had not anticipated.
“I’m prepared to admit that the recession has been postponed. However, it has not fallen apart,” he wrote. He went on, “This recession will come in the next few quarters, not the next few years,” forecasting a sharp increase in loan defaults and job losses, a quicker rate of disinflation, and a fresh Treasury bond bull market.
Rosenberg’s inner circle will not be shocked by his most recent warning. He has already drawn comparisons between the current climate and the housing and dot-com bubbles, as well as between the strong opposition he is encountering and the severe rejections he has previously endured before being validated.
“I’m bloodied but unbowed, and not willing to surrender to the legion of new ‘new era’ advocates,” he stated.
