David Rosenberg Chief Economist and Strategist for Gluskin-Sheff makes the case here via Zero Hedge and Lance Roberts of Street Talk Live.
Rosenberg's Potemkin (fake) Rally "coffee table" presentation at the 10th annual Strategic Investment Conference presented by Altegis Investments and John Mauldin, is loaded with charts and he makes a persuasive argument for a sea change.
Says Rosenberg: "There has been a secular decline in Potential GDP (U.S.) growth. Here is a question for you. How does 1.8% GDP growth rate over the last year drop the unemployment rate by 60 basis points from 8.1 to 7.5%? That math simply doesn't work."
"The growth rate of GDP has fallen significantly and this should not be ignored. Historically, the economy could grow at 4% without creating inflation. With the current makeup of the economy today that is no longer possible. This is why we are likely witnessing the early stages of the transition from deflation to inflation and the end of my “love affair” with bonds."
"One of the factors that will be supportive of an economic push will be the end of the (U.S.) household deleveraging cycle. I think that the end of the deleveraging cycle is about 2 years away. As you can see in the next slide borrowing has started to rise once again and will be a tailwind for the economy. This has been the primary goal of the Fed’s QE programs - boost asset prices to stimulate consumer confidence and borrowing."
"There is a problem though. Productivity growth is heading lower because of lack of capital formation. However, unit labor costs are rising which, as I said, has a high correlation to inflation. The bad news is that rising wage costs negatively impact profit margins." AND "Here is the problem currently. The real fed funds rate is very negative. The last time this occurred was when Author Burns was Fed chairman (1970's, prior to the Volcker 1980's era of mega interest rate increases to kill inflation)."
"The following two decades were not kind."
Rosenberg goes on to suggest: "These are the areas that should perform the best should this longer term view of the world begin to develop":
Canadian real estate in the bubbly metro markets do not have positive yields and if we are to see a shift to rising rates as Roseberg suggests, then yield chasers don't need the risk of a "slow asset" like real estate.
I track Canadian "real" interest rates here, and they did shift to rising two years ago and are up over 200 beeps. That's a potential sell signal.