Famed market strategist David Rosenberg, of Toronto’s Gluskin Sheff is always worth reading. His remarks are normally reserved for his firm’s clients and subscribers, but they are occasionally available for public viewing.
Yesterday some of Rosenberg’s recent remarks were posted on AdvisorAnalyst.com. They are especially interesting because they show a marked shift in Rosenberg’s perspective. He has given up on the bond market, as a deflation play and is moving toward more inflation sensitive stocks.
Since, by his account, he has long been bullish on bonds for a quarter century, his call is worth noting.
As for the current bull run in the stock market—the one that many of us underestimated—Rosenberg agrees with those who see it as the product of Federal Reserve money printing. He calls it a Potemkin rally:
We currently are witnessing the Potemkin rally. For a quick background the phrase Potemkin villages was originally used to describe a fake village, built only to impress. According to the story, Russian minister Grigory Potemkin who led the Crimean military campaign erected fake settlements along the banks of the Dnieper River in order to fool Empress Catherine II during her visit to Crimea in 1787.
The term, however, is now used, typically in politics and economics, to describe any construction (literal or figurative) built solely to deceive others into thinking that some situation is better than it really is.
Ben Bernanke, recently proclaimed “The Hero” by Atlantic Magazine, is the “Wizard of Potemkin.”
Since 2009 Bernanke has engage in massive monetary experiments. These experiments lead to future dislocations. The chart below shows that for every dollar increase in the Fed’s balance sheet it has translated into $1 of NYSE market capitalization to GDP.
Rosenberg believes that the Fed is trying to convince people that the economy is better than it really is.
For those who are interested in analyzing the markets, Rosenberg’s text will be well worth your time and attention.