Renowned economist David Rosenberg has issued a stark warning to investors, highlighting their complacency as reminiscent of the lead-up to the 2008 housing crash and financial crisis. Rosenberg, president of Rosenberg Research, drew parallels between the current economic climate and that of 2007. He pointed out that stocks and homes are more expensive relative to incomes and profits than during the mid-2000s bubbles. Additionally, credit-card and auto-loan delinquencies are on the rise, and the shadow-banking sector is burdened with dangerous amounts of debt.
Furthermore, Rosenberg highlighted the tendency to downplay significant incidents, such as the collapse of New Century Financial and Bear Stearns in 2007, which are similar to the recent wave of bank failures. He cautioned that the current strength of certain economic indicators may be misleading, as many of them only declined eight months into the 2008 recession.
Rosenberg emphasized the role of government spending in bolstering consumer demand during the mid-2000s and noted that pandemic stimulus has had a similar effect. He also highlighted the more aggressive interest rate hikes by the Federal Reserve over the past 18 months compared to the mid-2000s, asserting that rate cuts in the summer of 2007 were insufficient to rescue the economy.
The economist warned that investors are once again falling for the belief that the boom-bust cycle is a thing of the past and that a “new era” awaits. However, he cautioned that history is repeating itself, with an impending recession that most people fail to foresee. Rosenberg predicted an increase in job losses and loan defaults, faster disinflation, and a new bull market in Treasuries.
This latest warning from Rosenberg comes as no surprise to his followers. He has previously likened the current economic environment to the dot-com and housing bubbles, expressing his determination not to succumb to the beliefs of the “new era” advocates. Despite facing pushback, he has been proven right in the past.
In conclusion, David Rosenberg’s cautionary message serves as a reminder that the US economy may be headed for a slump in the next few quarters, with potential consequences that most investors fail to acknowledge.
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