Low interest rates will last more than two years - David Rosenberg

June 22, 2020

New York (June 22)  It is inevitable that the global economy will see a bounce in activity after being devastated by the COVID-19 pandemic, but don’t expect it to reach pre-crisis levels any time soon, according to one economist.

In an interview with Kitco News, David Rosenberg, chief economist at strategist at Rosenberg Research and Associates, not only warned investors to expect a slower economic recovery but also that they shouldn’t look at equity market valuations as a signs that everything will be back to normal soon.

Although equities markets have seen their biggest rally in history off the March lows, Rosenberg said that the rally is being artificially supported by massive stimulus measures from the Federal Reserve and the federal government.

Last week, optimism for a V-shaped recovery picked up after the U.S. government reported a strong rise in retail sales in May. However, Rosenberg said that increased consumption is not sustainable.

“Maybe it shouldn't have been that big of a surprise when you consider that in the month of April, the U.S. government handed out $3 trillion,” he said. “That is basically charity money from uncle Sam to keep social stability intact.”

“Since then, industrial production and housing starts, both came in below expected, but you see, as long as the stock market's going up and up and up the people are going to believe that everything is good,” he added.

As to how to navigate these financial markets that have been artificially stimulated, Rosenberg said that it makes sense to hold some gold.

“All the central bank alchemy has led to these ever increasingly unstable markets. And we have to realize that volatility works in both directions up and down,” he said “Gold is going to do very well against this backdrop.”

Looking at interest rates, Federal Reserve is forecasting interest rates to remain at the zero-bound target for the next two years; however, Rosenberg said that a report published by the San Francisco Federal Reserve that looked at pandemics through the ages and the study suggests that rates could remain lower for much longer.

Quoting the report, Rosenberg said that the conclusion of the research shows that historically after a major pandemic, interest rates have remained low for decades afterwards.

“There's still going to be this lingering output gap, which is why [the Federal Reserve is] going to have rates close to zero for many years to come, I think beyond just a 2022,” he said.

Instead of looking at value plays in equity markets where valuation is tainted with central bank stimulus, Rosenberg said that investors should look for growth opportunities. Some of the sectors Rosenberg said that he likes include big tech as more and more people use technology to work from home, healthcare, and consumer staples and grocery stores that have developed strong online delivery programs


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