MacroVoices #552 David Rosenberg: Navigating The Noise

historically, when a one-party power swings to a two-party system with gridlock, 80% of the time, the economy slows, 80% of the time, inflation goes down, and 80% of the time, bond yields go down in that two-year period after a national election. That was Rosenberg Research founder David Rosenberg. I'm Eric Townsend, and this is Macro Voices, the free weekly podcast targeting professional finance and sophisticated private investors. Episode 552 was produced October 1st, 2026. Listener response to our Macro Voices unplugged bonus episode that gave you a double dose of Michael Every last week was overwhelmingly positive. So before we dive in with Rosie, a quick housekeeping announcement. Going forward, we'll consider adding Macro Voices unplugged bonus episodes for guests like Michael and Anas Alhaji and others who just have no idea what they're doing. So if you're interested in that, please do so. Too much to say for one episode. But out of respect for both your time and our production budget, quite frankly, we're only going to do that when the circumstances warrant. The next likely one would be when we bring Dr. Anas Alhaji back. And you can expect that before the end of the year, certainly, and maybe even before the end of this month. We've got to work that into our schedule. That would come complete with an unplugged bonus episode. And get this, if you want to influence the content of that unplugged session, be sure to follow Anas on X because he's going to reach out to his audience for questions and topics that they want answered when we bring him back for that unplugged session. Now, it's still a few weeks away. So you've got time now to make your request known to Anas by tweeting them. Don't send them to us because Anas is collecting that information. He's going to assimilate it and we'll figure out what you guys want us to discuss in Anas' first appearance in the show. an unplugged session, which we'll do after a regular format. Another thing I want to announce as I have this opportunity is we're definitely committed to keeping the flagship podcast interview length to a target of 45 to 55 minutes and not more. That's out of respect for your time because we know you're busy. If you want the extended content, we'll always put it in a separate episode. So what you can expect when we bring Anas back is a fairly tight update on the market. And then a much broader discussion in the follow on, which will probably come a day later again. But that one will be content that you've requested by tweeting it to Anas. Now let's dive into Rosie's latest interview, which covers secular inflation, why Rosie doesn't buy the popular narrative, the AI boom and what could bust it. Midterm elections is a setup for economic slowdown, as well as Washington gridlock and much, much more. That's all coming up in today's episode of Macro. And I'm Patrick Ceresna. Let's dive straight into this interview. Joining me now is David Rosenberg, also known as a bestselling author. New book coming out called Bear in the Bullring. That's October 6th, already available for preorder on Amazon. New ETF, Rosie ETF, boy, perfectly named. We'll come back to the book and the ETF at the end of the interview. But David, I wanted to get you back on the program for one specific reason, which is it's hard to find anybody. That is not flipped to inflationist and maybe even inflation alarmist because, well, it's in vogue right now. Does anyone I know in this industry I can count on not to be an inflationist just because it's in vogue? It's David Rosenberg. So is inflation the thing we need to focus on? And if not, why not? I'm never going to say that we shouldn't be watching inflation because that would be an irresponsible comment to make. But if you're going to ask me, is inflation the risk that the media and pundits on the business cable shows and Wall Street research reports, is inflation the big threat that it's made out to be? In my opinion, it's not. And what I find interesting is that the same people now talking about inflation because of energy and specifically crack spreads and diesel were the same people that were yelling about inflation back in the spring, summer and fall of last year because of the Trump tariffs. And we were going to have a mountain of product inflation, imported inflation. And you know what? That never really did happen. It's not as if we didn't get a temporary bump in inflation from the tariffs, but you really have to strain your eye to see it. And if it was a temporary bump in inflation, it's not as if we didn't get a temporary bump in inflation from the tariffs. And if it was a temporary bump in inflation, it's not as if we didn't have to strain your eye to see it. And if it was going to show up in any persistent way, it would show up in the core goods CPI index. And what's interesting is that a year ago, the year-over-year trend in the core goods CPI was running at 1.5%. Today, it's running below 0.7%. It's at a four-year low. So I would just ask the question, if we're going to see an increase in inflation, how much will it be? And if we didn't get the big inflation from the big tariffs, and when you look at what the net effective tariff rate did, I mean, it went up a whole lot, the biggest increase since the early to mid-1930s. But there was never a sustained pass-through to final inflation where you think it would hit the most, which was in the core product sector. And in fact, it's been decelerating over the past year. Somebody must have eaten the tariff increase. Was it the exporter? Who didn't want to sacrifice market share? Was it the importer at the border? Did it show up in profit margins in the affected sectors along the way? Or maybe all three? But the proof of the pudding is in the eating. And I asked the question, and we could extend the conversation further, but I would ask the people that think that because of a one-trick pony, which is energy, why will that cause the sustained inflation that the Trump tariffs have, managed to do? Well, you make an excellent point, and I think it's also echoed. I had Harley Bassman on a couple of weeks ago. He says, boy, the inflation narrative sure does sound good, easy to talk to, but the data says it's not happening. And he had a couple slides up talking about what's going on with break-evens and CPI and so forth, and said that the numbers just don't support this narrative. And so that definitely confirms what you're saying. But here's why I'm a little bit stuck on this. I think the people that are worried about crude oil prices spiking, they're going to be shorter term. But what we need is finished products. And when they blow refineries up, a lot of them around the world, we didn't have enough of those already, and they don't come back when the war ends. It takes years to rebuild that stuff. So what I see is a potential inflation driver, and I don't know how it gets balanced out against other stuff, is if you keep blowing refineries up and you can't make the diesel fuel out of the crude oil, you end up with plenty of crude oil and no diesel fuel. Is that a potential inflation risk that we wouldn't be able to mitigate? I see that as a risk as to why we're not going to get a whole lot of price relief. So this won't be a case like you had, for example, in Gulf War I. I mean, I have to go all the way back to 1990 when probably most of the listeners were in grade school, and you went from 20 to 40 on WTI and then quickly reversed right back to 20. What's the risk? What's the risk? So I would say that, no, I don't think that your thesis leads to continuously higher refined product increases in energy. I think that we'll just stay at an elevated level. And the reality is that even though the conflict is ongoing between the U.S. and Iran, we are seeing traffic flow through Hormuz that we haven't seen since the beginning of the war. And we're seeing exports in the Gulf region to be ramped up pretty significantly, especially in that very critical Saudi Arabia east-west pipeline. So I think that the relief won't come from prices coming down significantly. They'll stay elevated. But remember that inflation is not a level. Inflation is a rate of change. So even if diesel stays where it is, if gasoline prices stay where they are, maybe they come down a little bit, in 12 months' time, it still falls out of the data. You're not going to get as big of a push down in inflation as you would, obviously, arithmetically, if energy prices were to even reverse half of the big run-up. But all you need to have the momentum stop is to just have energy prices peak out, which is what I think is going to happen. The other part of it is how we want to look at inflation, because it's not really a moment in time. The problem is that, you know, we live in the here and now. We're inundated with news, social media. We have our Bloomberg terminals. We could see the tickers every second. But inflation is a process. Now, the reason why we had 18 months of non-transitory inflation in, say, 2021, 2022, in a 2023, is because it did feed into wages. That is necessary for this to become truly a sustained inflationary development, as opposed to just a shock that lasts a few months. Now, the reason we had the wage price spiral and it lasted 18 months It really wasn't transitory when all was said and done, but then again, it wasn't the 1970s either. You got to remember the 1970s, we had repeated oil shocks, but the economy was unionized and everybody had a COLA clause. So the labor market had bargaining power. Now for a period coming out of COVID, because the government, through its endless stupidity, not just decided to give people $2 trillion of stimulus checks to spend just as the economy reopened, but the government was paying people not to work for two years and paying them more. So then the business sector, when the economy reopened, had to pay up even more to attract labor back into the market. So you had this wage price spiral. This is what's critical. Prices have to feed into wages. Because if the price shock doesn't feed into wages, it hits the wall in the labor market. And all you end up with is negative real wages that then trigger an environment of negative real consumer demand, which means that, yes, you will get inflation in, say, fuels and possibly in the food as well. When you look at fertilizer and the wholesale market for grains, yes, that's true. There's stuff we still have to fill our cars and we still have to eat. But the other, call it 80-85% of the pricing probably ends up coming under downward pressure because you get demand destruction in the more cyclical parts of the economy, in services and goods. So the stuff that you don't need, the discretionary stuff, those prices come under downward pressure. So it's a relative price game. For it to become sustained inflation for us to be worried about, you have to see it enter into the labor market. And we're not seeing it right now. And it's very interesting for anybody that wants to see a Fed official that may be pushing against Kevin Warsh, who says wages don't matter. John Williams of the New York Fed just gave a speech on September 29th talking about, we see no evidence that these price shocks are entering into wages. Therefore, the inflation situation is unlikely to become self-reinforcing. Now, people say, well, Williams was part of the transitory crowd. The thing is that where he got it wrong was that. It was a different labor market. The labor market was heating up dramatically coming out of COVID. The quits rate was surging. The hiring rate was surging. The job opening rate was surging. Labor demand was out of control. We don't have that environment today. And in fact, in nominal terms, wages are decelerating. So to me, that is going to be the catalyst for whether this turns into something more sinister than just an energy price shock. Because if. If the labor market is not strong enough to cause wages to play catch-up and it's not happening, then all this ends up being is almost the same thing as a tax shock. It's really akin to a tax increase. Would you consider a tax increase to be inflationary? Well, it would be if you go to your boss and you say, hey, my taxes went up. I want higher wages. But this is a tax increase. And it is not sustainable unless the labor market changes. Plays ball. And that was the missing link last year. We don't have to go back five, ten years. We had the tariff shock. Where was the inflation? Where was the inflation from the tariff shock? It was small, and now it's totally reversed. It's faded into the rearview mirror. Why? Because it didn't filter into wages. That's the key. Besides the fact that we could sit here and talk all day long about diesel. The filter through to transportation, freight. That's about a 5% inflation impulse. I mean, because forecasting inflation, it is a complex process. Labor is 30%. 30% of the cost at the retail level. It's six times more powerful than energy. But we don't see labor costs minute by minute. On our Bloomberg screen, we see what energy is doing. So I will say that I will reserve my judgment until I see evidence that we're seeing bargaining agreements, collective bargaining agreements start to escalate. We start to see wage trends escalate. We'll see non-farm payrolls. I think average hourly earnings will be the most important number. Until that happens, until I see the labor market respond, I'll take the other side of the bet that this is going to be a major sustainable inflationary problem for the economy. I saw another quote go by my screen that I'm pretty sure was attributed to you that I thought was really insightful, which is everybody's talking about, but the 10-year yield. And I think it was you who said the rise in yields is 90% real rates and only 10% inflation expectations. I thought that was a brilliant quote, but okay, let's go to the next level. Why are we seeing right now such strength in real rates? Well, we have two things going on. The first, of course, is the fact that we have, these hyperscalers dramatically increasing their CapEx commitments. And now three of the biggest of the four are now net free cash flow negatives. So they're going to the bond market and they're going to the long end of the bond market, the multiple currencies to fund their CapEx boom. So what's changed is that this is no longer being funded out of their cash flows. So now you're having corporate credit demands bumping against capital. Government credit demands. And that's one of the reasons why the real rates going up is because the demand for capital is going up. People like to point to, you know, $40 trillion of government debt. With all due respect, when the 10-year treasury note yield was last below 4% in February, the national debt was 39 trillion. Now we're at 40. Oh, so this last trillion is we have a debt crisis on our hands. So we added it. We. What? We've gone from 38 trillion to 39 trillion from last October to this February. And nobody talked about that. And the 10-year note yield went below 4% after adding a trillion dollars of debt from October 2025 to February 2026. At 39 trillion, nobody was talking about it. But now at 40, because it's a zero, everybody's talking about it. Because what people do, and I imagine they do this on your show, and I see them do it on CNBC and Fox. And on Bloomberg TV, what's been the biggest change? Because the AI spending boom was going on back in February when the 10-year note was below 4%. Government debt deficits, is that really new? I started in the business in October 1987 when all we talked about were the twin deficits. Let's focus on what is the elephant in the room. What's changed the most is we have regime change at the Fed. So let me be emphatic, and I can't prove it. It's just an opinion, that if Powell were still in charge, most of this, I'm not going to say all of it, most of this would not be happening. I can't say all of it because when Walsh took over in June, the 10-year note was barely around 4.4, and we're up about 90 basis points since. But I think Powell carried through a different monetary policy. Powell never said, I'm focused on headline inflation. To most central bankers, it's always been core. Walsh's headline. And his new framework, which isn't even a framework, I don't know what to call it, but everybody's latched onto it, is the share of the PC deflator that's rising more than a 3% annual rate. As if that's a meaningful statistic. So basically, so what if a bag of peanuts is going up 10% and auto prices are going down 5%? In his statistics, they're both. Well, a bag of peanuts to Kevin Walsh is equivalent to an automobile. Think about how insane that is. And he's not giving guidance. He's really not giving much of a framework. He has sounded hawkish. But then when he was vying for the job, he was dovish. Interesting that when he was applying to be Fed chairman, he was open about his favorite inflation statistic, which was the Dallas Fed trim mean inflation measure, which last I saw was 2.3%. 30 basis points above the beloved and Ballyhoo 2% target. Wow, that's really a big deal. He doesn't talk about that anymore. So he's been tight lipped. But that means his words carry more weight. And he has come across as being very hawkish. And he managed to cobble together a consensus, the hike rates at the last meeting. Now, remember that back in February, the markets were pricey. The markets were priced for one or two rate cuts, and then the Fed switches to a tightening bias, then they raise rates, and now the markets are priced for three or four more tightenings on top of what they already did. So when you look at the arithmetic, how did we go up well over 100 basis points across the Treasury curve is because the market has reset from an accommodative Fed to a tighter Fed. The Fed has taken the cost of carry away. Where are you going to hide? Well, you're going to hide at the front end of the curve, or you're going to go to the Treasury bills. Why would you want to take on duration with such a flat yield curve? So that's really what the story is. What has been the biggest change? The biggest change has been the reset of Fed expectations. That explains most of the run-up in yields we've had from the lows in late February and has explained almost all of the increase we've had since Warsh took over back in the middle of June. I think you hit the nail on the head with the phrase regime change at the Fed. I think that's exactly it. And I think it's even bigger than that. What I would say is it seems like between Warsh and Besant and the Trump administration, they've got an agenda to basically say we're going to take both monetary and fiscal policy in a different direction than it's been taken before. We're going to do this differently. We've got our own plan. I can't figure out exactly what that plan is. It feels to me like there is a grand plan, though, that's bigger than just Fed FOMC policy. Do you agree with that? And if so, can you figure out what the big plan is? No, I can't figure it out. I can't figure out anything coming out of Washington. And- There's no doubt that Warsh has done a giant pivot. He was not talking about, when he was appointed for the job, he wasn't lamenting about the fact that inflation has been above target for five years. But now he's in control of the Fed and his character has changed. Now, he's got a lot of support. In some sense, he's following the historical script because, you know, if you go all the way back to all the rookie Fed chairpeople, I say chairpeople because Jenny Ellen, is a woman, but all the way back to Miller in the 70s, the first move by the rookie Fed chairperson was to raise rates at the first opportunity. Remember, I mentioned Greenspan when I started in the business, and he was raising rates pretty aggressively. Now, well, we know what happened next. On the day I started on October 19th of 87, but the last Fed chairman to cut rates at the first meeting was Arthur Burns in 1970. And that's- Because the U.S. economy was entering into a recession. So that's the first thing. It's just a pattern. The first thing the Fed chairperson does, and Jenny Ellen, who people thought was a puffball, her first move was to hike rates in December 2015. Here, a Democrat, a labor market expert, historically a dove, raised rates at her first opportunity. And so he just fit the historical bill. I guess the central bankers feel they have to flex their inflation. They have to flex their inflation credentials right away. So maybe that's part of it. I don't like the fact that he really has not unveiled a framework as to what's going on. He doesn't want to do that. He wants to leave all the guesswork up to the market. And so the market is reading every syllable as hawkish. I mean, if you noticed, whenever Warsh opens his mouth, the 10-year yield goes up six or seven basis points. It's incredible. So they're interpreting whatever. Whatever it is he's saying, and he's not saying much, as being hawkish. Now, it is interesting that Williams looked like he pushed back a little bit on that in his September 29th speech, but we'll see what happens. But I think that Fed policy, and it's amazing to me that everybody is coming out thinking that Warsh is great and this is just a great Fed and they're going to crush inflation. Everybody thinks inflation is a big problem, and everybody is begging. They're begging the Fed to raise rates. You have almost a record level, you said before, a record level of net spec and of short positions on the CBOT when it comes to the 10-year note. It is sexy and fashionable to hate the bond market right now. You're viewed as a hero, the so-called bond vigilantes. Well, they're not really bond vigilantes. They're just basically looking at how the Fed is going to be influencing the cost to carry in the Treasury market. And the same Treasury. The Treasury market that was pricing in a couple of rate cuts six months ago are now pricing in four more rate hikes. And we'll see how that changes. But no, Fed policy has me confused. And the administration's policy has me confused, totally confused. I mean, how can you go on to an affordability program ahead of the midterms and then you want to engage in a trade war with your principal trading partner north of the border? How does that make any sense? And offering $5,000 as a dividend to voting citizens, if the House and the Senate stay Republican, that's a trillion dollars. How does that solve inflation? That sort of giveaway was one of the reasons we had inflation. The Biden followed by Trump giveaway, the $2 trillion fiscal stimulus checks, that accounted for more than half the inflation we saw going from zero to $1 trillion. Zero to 9% from, let's call it 2020 to 2022. So there's not much I can say that I fully comprehend. You know, Besson says, I'm the House. You want to bet against the House? Bet against the House. Well, people are betting against the House. Maybe a comment he shouldn't have said doesn't show too much humility. But we'll see what happens after. There's two dates we should circle on the calendar. One is November 3rd. That's the midterms. And it looks as though the Democrats take. The House is now in the prediction polls, more than 50% chance they take the Senate. But if they take the House, that's where the rubber meets the road for fiscal policy, because that's where, you know, the spending bills get passed. So we're going to get fiscal, we're going to have policy gridlock. This is what's going to change after November 3rd is we're going to go into a period of gridlock. And people always said on the bond market, gridlock is good because the executive branch and the legislative branch. I typically are at odds with each other and nothing gets done. And I say, if nothing gets done on fiscal policy, because look, well, one of the reasons why you could argue the economy has done fairly well this year and it's been equity wealth effect on spending at the high end on luxury goods and services. It's been the AI spending boom, although a lot of that has been offset by rising imports. But the one big, beautiful bill, right, that never would have been passed had Trump not had Congress being dominated by the Republicans. And so it's amazing what you can accomplish when you have one party power. The one big, beautiful bill was huge stimulus for the economy this year. The depreciation allowance, the huge income tax refunds, you can't extrapolate that into the future. These were one-offs and they come to an end, basically. There's no more fiscal stimulus in the economy after November the 3rd. Have the bond bearers factored that into their analysis? People are not. Realize that 80% of the time, historically, when a one-party power after a national election swings to a two-party system with gridlock, 80% of the time, the economy slows, 80% of the time, inflation goes down, and 80% of the time, bond yields go down in that two-year period between the time of the midterms where you get the gridlock to the next election. This will be in 2028. I'll take those 80% off. And that's because we get the fiscal gridlock. The Democrats aren't going to work with Trump. And even if Trump wants to work with the Democrats, he used to be a Democrat way back in the day. I can only talk about what I have confidence in. I can only have confidence in the calendar. November 3rd is the midterms. I think we have a good idea how that's going to play out. And I think that's going to end this past six years of insane fiscal stimulus. That's been great for the economy, but it has been, you could say, a struggle. It's been a source of inflation from an agri-demand perspective, but it certainly has also been a positive for the stock market. But that comes to an end. Then November 4th is the Treasury refunding announcement. And I'm sort of thinking that if his buyback program got a lot of press, but I mean, whatever, $6 billion into a market that turns over by a trillion dollars a day is not going to have a big impact. But the Treasury does have a very big impact, not on the demand for inflation, but on the fixed income assets. That's the Fed. The Fed can do that through its balance sheet. But the Treasury Department has a huge influence on the supply. They are the suppliers of the debt. They can choose what maturities. And so I am thinking, in answer to your question about the bond market, what might happen that could come as a surprise is what happened back in early November of 2023 when Janet Yellen was Treasury Secretary. And at the Treasury refunding announcement, she dramatically cut the supply issuance of bonds and notes. And flooded the market with bills. And you had an enormous rally in the 10-year note. The 10-year note from late October to the end of December went down to 100 basis points. Is anybody talking about that? Your first question to me was about diesel and about inflation and labor market. Nobody's talking about the Treasury refunding on November the 4th. When I speak in front of a group of people and ask them if they can tell me when November the 4th is going to be, why it's important, everybody says to me, it's the midterm elections. I say, no, that's the day before. November 4th is a Treasury refunding announcement. And that could be a very big deal. Just remember how powerful that influence was on the yield curve back in the fall of 2023. We may well see a repeat of that. So I'll reserve judgment about Besant, but I think that's what he's going to do. It's not really an operation twist. It's just influencing the shape of the curve by cutting back on long-dated issuance. And that's really where the big problem has been. And when you think about it, the economy is priced off the 10-year note. Nothing else really matters as much. David, I couldn't possibly. I couldn't possibly agree more. And I think what you've just said about the midterms is the insight that seems to be. missing from the market. We're pretty darn close to all-time highs here. There's not a whole lot of volatility in stocks as we're a month away from an election where the polling is telling us, and I'm not taking any side on who's right, left or right, you know, who's wrong. That's not what Macro Voices is for. But if the polls are telling us that the political party that's impeached the current president twice before and doesn't like him is about to take at least one and maybe both houses of Congress, that seems like a pretty darn big risk factor that I would expect the market's fear of uncertainty to just be going on steroids right now. But it seems like nobody's really talking about it. I don't get it. I think as we're still fixated on what's happening with energy, we have a new Fed chairman. There's a debate as to just how strong the economy is. So there are so many moving pieces. But- There is talk about the midterms, but they're in the marketplace, not a lot of talk about what are the implications of this political shift on the stock market and the bond market. Now, look, when you go back, for example, and this is why, you know, people get a little upset with me when I talk about politics and I never really take sides. I will be critical. I was as critical of Obama and Biden and Trump almost equally when I thought, that it was necessary. But I'm more into trying to help people wade through how the politics can influence the financial markets. That's what consumes me. For example, when you go back to early November of 2024, the last election, did you see in the days and weeks after the election, the stock market surged and the treasury market got spanked? Spanked. Like it is today, actually. Today for a different reason. Back then, it's because, not because Trump won the election. It's because it was a red wave. It was a clean sweep. The Republicans took the House, took the Senate, and you had Trump in power. And you knew at that point, the one big, beautiful bill was coming. And the bond market and the stock market acted accordingly. Stock surged on the implications for profits from depreciation. And the stock market surged on inflation allowances and income tax refunds, no tax on tips, all the stuff he campaigned on. And so that's really what was important about one party sweep. And bond yields soared. When you go back to when Trump won in November 2016, Trump 1.0, and he campaigned on tax cuts, which he got through. Do you remember how the bond market puked in November 2016 election? Stock market surged pretty tough here. And then when you go to the midterms, and you get the split government, not typically good news for equities. And bonds tend to like it because of the gridlock. You know, the same thing happened. You can go all the way back if you want to. Remember like yesterday when Clinton got elected in 1992. Clean sweep. And people thought he was a borderline socialist. And then look what happened when we had Newt Gingrich's contract with America, and we went to split government. In 1994, and we had the mother of all bond rallies. So the politics matter. I agree. Nobody's really talking about two dates. Now basically, I'm probably early like I usually am, but I've started to dip my toes into, I've already owned a lot of two-year notes because I don't think the Fed's going to be raising rates four times. They didn't even signal that, but the market thinks they did because there's really ineffective communication coming out of the Fed. The market thinks the Fed is going to. Inflation is such a problem, the Fed's going to have to raise rates aggressively. I don't have that view, but the market's got that view. But I think that there's going to be two things, November 3rd midterms, and people will realize that we're exiting finally the fiscal insanity. Maybe we have to thank the Democrats. I don't, I mean, I see it both ways. I think that we just have moved to an economy and a financial market and a political spectrum that is just extreme. But the Republicans have not proven to have been good managers of fiscal policy. The good thing about split government is that nothing gets done. And that's what we need to at least not have the deficit rise any further. And that also means that's going to have incrementally a depressing impact on the aggregate demand because government's part of the economy. So I think that's good news for those of us that want to see the economy cool off. I want to see bond yields come down because I'm one of the few people that are going to be able to see bond yields come down. I'm one of the few people that are going to be able to see bond yields come down because I'm one of the few people that have not thrown in the towel. And then November the 4th, the Treasury funding. And there's been three other times in the past where the Treasury did something like what Janet Yellen did in 2023. And you can shrug your shoulders and say, yeah, I don't really care. Well, let me tell you something. When people try and figure out what the hell happened in the fall of 2023, coming off the mother of all Fed tightening cycles, we had chat GPT. At that point, the AI trade was taken off. Okay. This is the fall of 2023 out of the blue, 100 basis point rally in a 10-year note in barely more than two months. Why? Because of what the Treasury did at the refunding announcement. And of course, Janet Yellen did that after a very pernicious increase in long-term rates. And it wasn't intervention. It was just a shift in emphasis on where they're going to issue across the curve. And I have a sense that if Besson wants to do anything, along the same lines, after a similar run-up in bond yields, he'll do something very similar. It's much more powerful than what he's doing on the bond buybacks. That's really a drop in the bucket. What the Treasury can do on the supply side is where the power really comes in Scott Besson's office. I want to go back to something you mentioned earlier, which is the AI bubble. And obviously, it's going strong. And I was really thinking it has to continue going strong because it's obviously the Trump administration, its big priority is to focus on it. It's kind of an arms race with China, I think. And I kind of thought it had to continue. But I had Matt Berry on recently who said, look, what people don't see coming is these Chinese open source, that's the free AI models, which means you got to buy your own hardware to run it on. But you can get something that's basically just as good as the best frontier models were three months ago, just a few months ago. You can get that for free open source, run it on your own. And that's what the Treasury is doing. And I think it's going to continue. And I think it's an extra advantage of running it on your own hardware, which means you're air gapping yourself from anthropic or open AI's cloud. So they're not using your proprietary data to train their next model. Matt thinks that could potentially result in a trend where a lot of people, particularly corporations that are sick of having their data mined, say, look, we're going to run on our own hardware. We're not going to use any more open AI, any more anthropic. We're just going to use this free Chinese stuff. Well, yeah. Boy, knock on effects from that in terms of the Trump administration policy. I can't even imagine what would happen. I mean, is that the risk, the AI bubble popping because maybe there's an alternative we don't realize? I think that it's a great point. Otherwise known as global competition and the final analysis we are seeing in real time that, you know, there are no real barriers to entry. And one way that I think China will once again, as it's done in the past, exert itself as a source of global disinflation. And that's again, why people are saying, well, look at what AI has done with memory chip prices, sources of inflation, semiconductors, so on and so forth. When push comes to shove, and this is not even including the future productivity benefits, which will be disinflationary, but that's out in the future. But I think what you're describing is another reason why I've not thrown in the towel on the bond market, despite how painful it's been. But, you know, anybody who was, in January of 2009, that said, you know what, this is ridiculous. The banks are priced for zero. You went from beginning of January of 2009 to the March lows. The S&P 500 was down like 40%. That was the last cataclysmic. And of course, we didn't know if TARP was going to get legislated or not. But those people in January of 2009 that bought the S&P 500, locked their nose, bought it, could withstand the next 30% or 40% down to the lows. I mean, you know, like a bandit that year, when you look at what happened from March to December. And when people were buying the stock market in January and February of 2009, they were viewed as idiots. Now, by the way, I was bearish. I was cutting my bearish call at that point. I can't say I was turning bullish, but I was, I thought, even at that point, I thought there were all sorts of signs of capitulation. There was fear and disdain about the stock market, much like you had in the summer of 1982, when the multiple got down to eight. And so, I'm looking at the bond market right now the same way. I mean, it's been terrible, but it's under-owned. There's so many short positions on the board of trade and futures and options pits. And I think that everybody is just focused on inflation. And I'm not going to push back and say that, you know, that they're deranged. I just think that inflation is always, in every word, a very complex item to forecast. There's hundreds of variables that go into it, but there's nothing I'm seeing that's telling me that we're entering into a pernicious inflationary environment. Well, you just said about Chinese competition. Perfect example. Build it and they will come. And you're right, there are other cheaper sources. On top of that, as I said before, there's other things people aren't looking at. How come nobody's talking about the housing market in the United States? Can you tell me that? And you know that Kevin Warsh at Jackson Hole talked about the economy being resilient, strong, and solid. It's his three favorite words. And he mentioned AI eight times. He mentioned housing once. So like I'll ask you, do you live in a data center yourself or do you live in a house? Housing is in a recession. You look at the home building stocks, you think we're in a deep recession. We just got the new home sale numbers. The home builders are discounting their product like it's nobody's business. But we still have eight and a half months supply of inventory. And new home prices on average are down eight and a half percent. I say that to people, new home prices are down eight and a half percent over the past year. Is that a source of inflation to you? In this $50 trillion asset class called residential real estate, it's deflating. Nobody's talking about it. And residential rents are still deflating. Nobody talks about the fact we still have a hugely overpriced, overbuilt apartment market in the United States because all the multifamily construction plans from a few years ago were built on a certain level of demographics. And now we have no population growth in the United States because of all the out migration. And so we still have excess supply of residential units in multifamily, downward pressure on rents. New home prices are now negative eight and a half percent year over year. If you don't have a lot of money, you don't have a lot of money. If you plug those numbers in the rents and the home prices in real time into the CPI, it'd be close to zero. But the core would be well below two percent. And I think with lags, we're going to see that coming through because shelter is far more important than energy in the CPI numbers. I'm digressing a little bit, but you're bringing up something that I think is disinflationary, not being discussed. I'm bringing up the labor market. We've got the ADP numbers. No acceleration on wage growth whatsoever. It was a nice headline number up 90,000. No acceleration on wages. That's very interesting to me that we have a hot labor market apparently, but no acceleration of wage growth. That's an interesting dichotomy. And nobody's focused on the housing market, which has emerged as a source of deflation. And you mentioned the stock market. Yes, the stock market. There is so much pain out there in white swaths of the stock market. So we can talk about the Mag7, the AI, NVIDIA. Great. Sure, Apple stock, great. But look at the regional banks. They've been terrible. The homebuilder's terrible. The retailer's terrible. Look at what restaurant stocks, consumer cyclical services like hotels and the cruise lines and the theme parks. They look terrible. The small caps. So people talk, they look at the S&P 500, where 50% of the market cap is 20 stocks. But nobody talks about the fact that the average and median stock in the United States is 20. So we're talking about the S&P 500. United States is down 15% from the 52-week highs. They're at a correction mode. The average stock is doing, you know, people say the stock market's holding up so well, despite what the bond market's done. No, no. There's part of the market, the big cats, that seem to be impervious to interest rates, yes. But there are white swaths of the stock market that are hurting a lot. So the bond market is actually having an impact. Especially when you're taking a look at the areas of the S&P 500 that are most closely tied to Fed policy. They're already down 10% from the recent peak. They're in a correction mode. So for people saying to me that the Fed's having no impact, no, I think you're not looking in the right places. You have to dig beneath the surface to see what's going on. Speaking of places that you can dig and look for something going on, let's go to gold as a final topic. Boy, the increasing real yields have sure clobbered gold. I don't think the fundamentals are any worse, but where's this headed? Well, you know, I wrote my first gold report when I was a Gluskin chef back in February of 2010. And gold was $1,000 an ounce. And, you know, the fundamental low at around $250 an ounce was back in 1999 with the signing of the Washington Agreement that ended a decade-long period of central bank. Gold selling globally. And there's been probably a dozen big corrections along the way. Nothing moves in a straight line. Blondes definitely don't. Stock markets don't. And the gold market doesn't move in a straight line either. But you're quite right that the run-up in real rates has been a serious crimp this year. And it's happened alongside the fact that a weak U.S. dollar turned into a strong U.S. dollar. And so anything priced in U.S. dollars, except oil, for obvious reasons, it's been a tough year. Gold is priced in dollars. So those two important correlations, the dollar and real rates, has caused gold and silver, precious metals in general, to have an off year after a great year last year. I think that we're in a corrective phase. But is the secular story over? No. Now, like I said before, I started the business. In October 19, 1987, the stock market was down 22% that day. And in fact, from the August peak, because of Alan Greenspan, who we ultimately called the serial bubble blower, but the maestro, may he rest in peace, came in guns a-blazing, just like people think worse is going to be. And the market was down 30% from the summer of 87 into the fall, down 30% in a matter of months. You look at the chart today, and he has to be 500. You can barely see it on the long-term chart. The secular bear market didn't end until 1991. It went on for another three years. So yeah, I think we're in a corrective phase. And I did cut our gold position in our model portfolio earlier this year, and then I started adding again in this corrective phase. The secular bull market really will end when the fundamental factor ends. And the fundamental factor is the key source of demand, which is central bank reserve reallocation. Reallocation from U.S. dollars into gold bullion. And global central banks continue to diversify into gold. That hasn't changed, even in this period. It's been a rough period for gold for most of this year. That hasn't changed. That's the fundamental positive story. The 10-year bear market in the 1980s was nothing more than the central bank shifting to treasury bills and out of gold, you know, to a point where the share of FX or reserves in gold in the vaults at the world's central banks went from a high of 70% in 1980, got as low as 10% in 1999. And now we're basically about 30%. We haven't even undertaken the full mean reversion trade yet. The day I see that the central banks say we're done in this diversification, that'll be the day that the fundamental bull market ends. And we're not there yet. David, I can't thank you enough for another terrific interview. But before I let you go, I do have to push back on one thing. You gave our listeners a list of important dates in the market. You left out a couple of really important ones. One, September 10th, which already happened. That was the launch of the Rosie ETF in Canada on the TSX. I'm sure our listeners want to know if there's any plan to eventually launch that in any U.S. market. And the other date is October 6th. That's if you order right now, when you will receive your copy of Bear in the Bullring, your new book. So let me just say that I had a Eureka moment in late 2002. And I think that's when I first heard of the idea of the Bear in the Bullring. And I think that's when I first heard of the Bear in the Bullring. And it's just really a collection of ideas and themes, convictions, reflecting my life as an economist in the financial markets for the past 40 years. So it's really all the collection of all those experiences and how it's shaped my philosophy, not just on the markets, but on life till this very day. Let me just say that I had a Eureka moment in late 2002 to 2022 when I kept on getting asked how I would grade my career. And I was always too scared to respond. My standard answer was that if I make it to Cooperstown for economists, it will be for at-bats, but probably not batting average. When people stopped chuckling at that quest, I realized I had to do something maybe a little more concrete. So I said, well, why don't I just put my money where my mouth is and create a model portfolio, ETF-based? Because, you know, I have 2,300 clients in 40 countries and from all different walks of the financial markets. And so our research mirrors our diverse client base. And I said, well, why don't we create a model portfolio that mirrors the depth and the breadth of our research? So I did that. And it's done extremely well. And it's not poorly with anything except the quality of the research at my firm. So it's diversified across all asset classes and all geographies. It's unconstrained. And my own client base, the same client base that pushed me to start my business in 2020, which I should really thank everybody for because it was the best decision I've made professionally, were the ones telling me to start this, to actually get this listed as an ETF. And I found this platform, Corton Capital in Canada. They're an ETF provider. They are the portfolio managers on the fund. I am the economic guru on the fund and really the raw portfolio feeds into this ETF. So Corton Capital provides the registration, the compliance, the back office. And so it's really a great marriage where the fund is based off of the research at Rosenberg Research. And so, yeah, launched a few weeks ago on a TSX. There is a Canadian and US dollar version. And I am in the process now and getting the ball rolling on getting it listed on the NYSE. And my legal counsel tells me that the timeframe should be sometime January, February of next year. Well, we'll look forward to having you back for an update in a future episode. Time now to bring in Patrick and Masil for our macroconference. Thanks, Eric. David's argument is that the energy shock could ultimately do more damage to growth than creating lasting inflation. If wages aren't keeping pace with necessities, households have less to spend everywhere else. Add higher borrowing costs and that squeeze is already showing up in housing, retailers and other economically sensitive parts of the market. But the major indices remain supported. By a handful of very large companies. How long can those leaders hold up if the weakness underneath continues to spread? That creates a reason to consider protection against a broad equity correction. Three-month volatility is still near the bottom of its one-year range. Yet the fourth quarter brings a full earnings season, two Fed meetings, a midterm elections and potentially greater clarity about the Strait of Hormuz, carrying reasonably priced protection through the calendar looks like an attractive trade-off. So here's the structure. With the S&P 500 trading around 76.53, we're looking at buying the January 14th, 2027 SPX put option at the 7,430 strike with about 105 days remaining. The strike is about 3% out of the money, carries roughly a 30 cent delta and is quoted at 136 index points. The out of the money strike reduces the premium commitment, which is a lot of money. While targeting that left tail risk with implied volatility near the lower end of its recent range, I prefer owning the put outright, retaining the positive gamma and vega to capture both equity downside and potentially volatility repricing. This insurance costs just under 2% of the index notional with the risk limited to the premium outlaid. The expiration break even is near 7,300, roughly 4.7% below our record. Although a sell-off and volatility expansion could offer the opportunity to monetize well before the expiration, it's a defined premium hedge against left tail risk through a consequential fourth quarter. That's where's the trade. Patrick analyzes and trades the markets every day over at Big Picture Trading. Macro Voices listeners can sign up for a free two-week trial at bigpicturetrading.com. Now back to Patrick and Masseel. All right, Patrick. Last week, we discussed the significance of the 10-year treasury yield breaking above 5%. And looking at it today, the bond sell-off just continues to be the story as yields now reach five and a quarter. Now, just yesterday, we got a softer than expected inflation report, which offered relief to the short end, but really didn't move the long end. What would the market need to see to stop the bleeding? It's not the level alone. It's the rate of change that can't be ignored. We've seen an acceleration in the selling, which is creating an incredibly large amount of anxiety about this move. What's interesting about this is a lot of people are speculating that the oversold condition of these bond markets was going to warrant a bounce. But when you have a $30 trillion freight train moving this way, it needs some form of a catalyst at some juncture here. terms of trade, and the stress is coming from the Strait of Hormuz, well, Europe is being disproportionately impacted by this. So that continues to only add further fuel for this breakdown. Now with the euro breaking down below the 1.13 handle, we have a situation where the euro could head down to 1.10 or even 1.08, which would only accelerate this U.S. dollar strength. Overall, with the rates rising and the bond markets under stress, this really could be a sign that there is genuine funding stresses happening around the world, and certainly only builds further case about the growing macro stresses that are existent here going into these midterms. All right, Patrick, let's talk about oil, because right now we've seen volatility driven by headlines. What's going on in the market? Well, mid-September, we saw crude oil trading north of 100, and there was certainly a lot of concerns about that. Things have really stabilized, and we've now mean-reverted, giving back half of those gains, and we're sitting down in the 90-plus dollar area, doing about a 50% retrace of the prior advance. We basically now have an oil market that is waiting for the next catalyst. Is there going to be a peace deal? Is there going to be more flows through the Strait of Hormuz? Or does this situation escalate? Obviously, there's a political driver for trying to keep this situation stable going in and out of the Strait of Hormuz, and there's a political driver for trying to keep this stable going in and out of the Strait of Hormuz. So there's a political driver for trying to keep this. rising US dollar and clearly the macro backdrop that we thought we were seeing in July, August, where there was a potential operation twist and easing messaging from Bascent that basically drove many gold investors to believe that we were at the inflection point. Well, that simply never materialized. At this stage, gold is giving it back over pretty much back to the summer lows at this stage. We'll be very likely that we can even retest the 4000 level along a support line. The bigger question here is, is this just gold now establishing its trade range and basing formation until the macro conditions favor a gold bull run? Or will there be tight liquidity conditions that basically create the selling pressure that could still have one more leg down and wash it out temporarily down to zero? At this point, we were bullish gold and still long term, the bull case is quite intact. The question only now is, is that how long will it take for the macro conditions to lighten up to allow the backdrop from which gold would be most responsive to? The key here is that the technical levels would require gold to sustain price action north of 4500 to pivot the technical trend back to the bull side. And that's where we're at right now. There's a lot of work for the bulls to do to turn this trend back up at this stage. I'm anticipating into the elections that gold will be far more range bound and consolidate in the weeks to come. All right, Patrick, for this week's positioning pause, let's go back to equities. And more importantly, let's hone in on the NASDAQ because the latest report shows a substantial increase in speculative net longs. But most of that change actually came from traders covering the short positions instead of new bulls entering the market. Now, when we're looking at that net positioning over open interest start, we haven't seen the NASDAQ leaning this bullish since 2017. Now, with the technology sector still carrying much of the bullish weight, what does it mean for the tech heavy index as we move into year end? We already talked about the fact that these mega cap tech names have been holding this market together. But when we look at the commitment of trader reports, this story is fascinating to me. We just saw the large speculators go from the 80th percentile to the 100th percentile in just one week. And that's on a one year, three year and five year look back. Just to put that in context, a month ago, we were at the 57th percentile. So there has been a huge positioning pivot to the long side of the NASDAQ. Week over week, we saw almost 8000 contracts added to the gross longs and almost 12000 contracts gross shorts covered. And so that was almost a 20000 contract swing week over week. So this continues to show this divergence because we're at the 36th percentile on the S&P and at the seventh percentile on the Russell. So there is a clear flip to being aggressively long exposed to the NASDAQ on a relative basis is one of the most interesting flips that we saw in the report. And it's if anyone wants to see that for themselves, check it out at signal dot com, because this is fascinating to see how this aggressively this flip happened. So that does it for this week's trading desk. I'm Patrick Ceresna. And I'm Marcel Bignan. See you next week. And a reminder, as a Macro Voices listener, you're entitled to a two week free trial of Big Picture Trading, where you can watch Patrick analyze and trade the markets live every single day at BigPictureTrading.com. No credit card is required to sign up and there's nothing to cancel. I'm Eric Townsend, and this is Macro Voices. We'll see you next week. I'll see you next week. Based on information or viewpoints presented on Macro Voices.