Bullet to the Forehead
“Cycles die, and you know how they die?” Rosenberg told the Inside ETFs Canada conference in Montreal on Thursday. “Because the Fed puts a bullet in its forehead.”
The market is in a classic late cycle, with wages rising at full employment, cooling commodities and potential trade wars, said Rosenberg, who was one of the first economists to warn of the Great Recession when he was at Merrill Lynch before the financial crisis. The result will be higher inflation, he said.
“We are seeing a significant shift in the markets,” he said. “The Fed was responsible for 1,000 rally points this cycle so we have to pay attention to what happens when the movie runs backward.”
Strange Stagflationary Mix
Rising inflation and a cooling economy is a strange mix. It seems he is counting on higher wages. But will wages keep rising in a recession? Will prices keep rising if commodities cool?
Rising inflation coupled with a recession is the definition of stagflation. But in Rosenberg's strange mix, stagflation will be accompanied with falling commodity prices.
The stagflation in the 1970s was accompanied with rising commodity costs and "oil shock".
I believe inflation concerns will quickly go the other way once recession hits. The bond market sure acts that way.
Mike "Mish" Shedlock