Tags: Rosenberg | bearish | government | Growth

David Rosenberg: I Am Bearish Because Govt Tactics Kill Growth

Friday, 10 February 2012 07:48 AM

Government spending and regulations will kill off any chances of stocks turning as bullish as many high-level market watchers are predicting, says David Rosenberg, chief economist at Gluskin Sheff.

Warren Buffett, New York University economist Nouriel Roubini and Larry Fink, head of the BlackRock asset management firm, have said they are going bullish on stocks thanks in part to fundamental improvements taking place in the economy.

Be wary, Rosenberg says.

"We have had three years of fiscal deficits around 10 percent of GDP. That’s the sort of red ink generally reserved for world wars. We have zero percent policy rates now for three years and a pledge for another three, and on top of that, a central bank that has blown out its balance sheet to a level that is now equivalent to 20 percent of GDP," Rosenberg writes in a note, according to the Wall Street Journal.

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The Federal Reserve has said it will keep interest rates low likely through the end of 2014.

"With this massive government incursion, wouldn’t it make sense that the economy would have at least some modest growth? The question will ultimately be answered down the road as to how things look when all this largess unwinds — at some point, the piper gets paid."

While fiscal spending has soared under the Obama administration, the Federal Reserve has purchased trillions of dollar in assets from banks with the aim of speeding up recovering, swelling its balance sheet in the process.
Reliance on public services such as housing assistance, welfare, food stamps and extended jobless benefits has surged to 23 percent of the population from 7.5 percent over the past two years

"This metric usually goes down after recessions end — but not this time. And to put it all in perspective, in the severe 1981-82 recession, there was only a 6 percent increase (and then it fell sharply)," Rosenberg writes.

"So you may want to call the economy 'resilient' but keep in mind that it is still being heavily medicated."

Legendary stock picker Warren Buffett has said that stocks are the way to go as low interest rates and rising inflationary pressures are making bonds unattractive.

"They are among the most dangerous of assets," Buffett describes bonds in a letter to shareholders appearing on Fortune magazine’s website.

"Over the past century these instruments have destroyed the purchasing power of investors in many countries, even as these holders continued to receive timely payments of interest and principal."

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