Today at the 65th Annual Chartered Financial Analyst (CFA) Conference in Chicago, David Rosenberg provided insight into the future of bonds and gold as a part of a panel discussion on the impacts of the world debt crisis. Rosenberg, from Gluskin + Sheff Associates, was joined by Barry Ritholtz (Fusion IQ) and Anatole Kaletsky (GaveKal) and the panel was moderated by John Mauldin of Millenium Wave Investments.
Rosenberg indicated that the world is moving towards a new economic period very different than what we’ve seen in the recent past. Dismissing the concept of a new growth pact in Europe, he explained that the Europe had reached a political inflexion point with the change in governments seen in the past week in both France and the Netherlands.
In the United States, his outlook is equally bleak, suggesting that a period of low economic growth and flat GDP would feel much like a recession, even if it wasn’t officially one. Here, his fellow panel member Kaletsky disagreed, commenting that the U.S. is actually in an expansion phase. He went further to suggest that the realities and results were showing this, however the negative outlook from those that cover markets was inhibiting seeing these results reflected in equity returns. Accordingly, Kaletsky predicted that once this attitude begins to shift, we could see increased valuations in the equity markets and delining bond prices.
In terms of bond prices, Rosenberg disagreed, suggesting that central banks will keep rates low for some time into the future, so long as deleveraging is occuring in the economy as a whole. While there appears to be some risk in current bond valuations, Rosenberg seemed to remain largely optimistic, telling his panel members that he has been hearing about a bond bubble for several years now, without one appearing.
When questioned about his outlook on gold, Rosenberg predicted a level of $3,000US per ounce, but with an indeterminate time frame for reaching that level. Rosenberg explained that one key aspect of gold prices is real short-term interest rates, which are currently negative in many economies. Combining this with his view for long-term low or negative real short-term interest rates, it’s easy to see where his bullish opinion on bullion comes from.
Rosenberg wrapped up with some thoughts on the impact of the debt crisis in emerging markets, indicating that the threat of further European bank withdrawl from emerging markets poised a real threat to growth.