Excess Returns Sep 18, 2026 · recorded Sep 16, 2026 1h 1m 41m saved
With David Rosenberg, founder of Rosenberg Research, who spent 12 years at Gluskin Sheff and before that at Merrill Lynch
Of the rise in the 10-year Treasury yield from its February low below 4% to 5%, David Rosenberg puts 90% down to the real interest rate and 10% to market-based inflation expectations.
Almost everyone discussing the bond market is discussing inflation, because the oil price is the visible thing. Rosenberg's argument is that inflation has been a minor character in the move, and that the positioning against Treasuries has become the opportunity.
"Everybody's loaded for bear."
Rosenberg founded Rosenberg Research after 12 years at Gluskin Sheff, which followed his years at Merrill Lynch, and wrote his first gold report in 2010 with the metal at $1,000 an ounce. He was speaking on the morning of 16 September, before the Fed's decision, and said so on air.
The full interview is covered here so you can skip it. 61 minutes of audio, 20 minutes of reading.
Here are the 15 calls that matter.
Key Takeaways
90% of the rise in the 10-year yield was the real rate and the term premium; 10% was inflation expectations
Without the term premium he puts the 10-year at 4.1% rather than 5%
Core goods inflation is running at 0.6% year over year, against 1.5% this time last year
Average hourly earnings growth is 3.1%, a five-year low, which is why he has not joined the inflation camp
The savings rate has fallen from 8% to 3%, which is how spending grows with no income growth
November 4 is the Treasury refunding announcement, and he expects a repeat of the autumn 2023 bill-heavy shift
Six straight years of 5%-plus deficits end with the midterms, and he calls fiscal gridlock good for bonds
280K net speculative short contracts on the 10-year note is the setup for a short-covering rally
The top 10 stocks are over 40% of the S&P 500, and only staples and healthcare are uncorrelated with the AI trade
72% of household financial assets are in equities and 7% in bonds, with the median boomer around 70
1. A Re-entry Into Treasuries
Asked what he was watching going into the Fed meeting, Rosenberg went straight to the asset nobody wants.
The most hated market is the one he wants
This is where I think that we could probably get a very nice re-entry point into the beaten down and maligned and detested Treasury market.
David Rosenberg
He flagged that he was speaking before the decision, and framed the case entirely as what the market has already priced against where he thinks things go. His model portfolio holds two-year notes, which he put at at least 4.5%.
Where the curve was when he spoke
Tens are at 5, the real yield at 2.5. That's basically where we were in the summer of 2007.
David Rosenberg
And his view of the pricing
The markets have gone too far pricing in the Fed, in my opinion.
David Rosenberg
His precedent is March of this year, when the dot plots called for a cut by year-end and the market priced two; the Fed did not ratify that either. He expects a bull steepener in the Treasury curve if the projections do not move much.
2. The Dot Plots Now Matter
Rosenberg's view of the Fed's rate projections is unflattering and, he argues, beside the point.
He has never taken them seriously
I've always thought the dot plots were a bit of a joke.
David Rosenberg
They matter more because the chair says less
The dot plots actually, counterintuitively maybe, or ironically, are more important now because Kevin Warsh does not like to give guidance like his predecessors did.
David Rosenberg
He allowed that Warsh communicates through body language and tone rather than guidance.
With a consistent effect on yields
It seems like whenever he opens his mouth, the 10-year Treasury note yield manages to go up six basis points.
David Rosenberg
The pivot he dated to 17 June, when the projections moved from a cut to a hike by year-end; the market has since discounted almost two hikes this year. For next year, he said the last set of projections had the funds rate around 3.6% to 3.8% while the bond market has priced about 4.5%.
3. Inflation Is Just Oil
Rosenberg's answer to the inflation objection is that the source of it is outside the Fed's reach.
The Fed cannot drill for oil
The inflation is really about the oil price, and what can the Fed really do about that unless Kevin Warsh and his FOMC team begin to drill for oil somewhere? This is an exogenous tax on the economy.
David Rosenberg
He then went through the places inflation would have to appear for it to be sustained and was not. Money velocity peaked in March, so no monetary inflation. Average hourly earnings are trending lower, so no wage inflation. New home prices are down 1% year over year.
Neither labor nor housing is generating it
There's no inflation coming out of the labor market or the housing market, 'cause rents are still deflating.
David Rosenberg
His explanation for why economists look at core inflation is that energy and food are usually supply-driven: people do not change their diet or start driving more overnight. What made the 2021–22 shock stick, in his account, was that it hit a labor market being heated by pandemic-era jobless benefits, and wage trends are now decelerating instead. A price shock into a decelerating wage environment compresses real incomes, which shows up with a lag as weaker real consumer spending, and that is what he expects into 2027.
He also pointed at the category he watches most closely, and at one nobody mentions.
Core goods are running at 0.6%
Core goods CPI, the stuff you can see, touch, and feel, appliances, furniture, building materials, apparel, autos, collectively, they're running basically at 0.6% year over year.
David Rosenberg
That compares with 1.5% this time last year. He said he leans on it because much of the service sector is guesswork and imputed, and that he believes Warsh's own task force will revise those numbers.
Nobody notices where medical costs are going
Medical care prices are going down.
David Rosenberg
He acknowledged the spillover from oil into delivery services and airfares, and said that is where it has stayed.
4. 90% Is the Real Rate
The number Rosenberg keeps returning to is the decomposition of the move in yields since February's low below 4%.
The real rate did the work
90% of the increase in the 10-year Treasury note yield has come from the real interest rate.
David Rosenberg
Inflation expectations barely moved
Only 10% has come from market-based inflation expectations.
David Rosenberg
Which puts fair value nearly a point lower
If it wasn't for that, the 10-year note yield, that would be 4.1%, not 5.
David Rosenberg
He attributed the term premium to the level of policy uncertainty across fiscal, trade, tariff and general economic policy, and said monetary policy is part of it because expectations for the Fed have been reset. The same risk aversion, he said, is now visible elsewhere: high-yield spreads have widened more than 20 basis points this month, and the equity multiple has contracted about three points this year. Investors facing that kind of uncertainty prefer bills or the very front end and will not take duration.
5. A No-Hire, No-Fire Market
On the labor market, Rosenberg's method is to ignore the monthly print. He picked apart August's 162,000 non-farm payrolls as heavy on local government education jobs, which he said may reflect the school year starting earlier, and noted that the low survey response rate means revisions every month. On the year-over-year trend, both the payroll and household surveys are flat.
Which is what a no-hire, no-fire economy produces
Stable means no growth.
David Rosenberg
The unemployment rate is 4.1%, held down by a falling participation rate from outmigration, early retirement and aging baby boomers. His objection is to reading 4.1% as tight without asking what full employment now looks like.
He thinks full employment is nearer 3.5%
It could well be that the full employment unemployment rate is closer to 3.5 than it is to 4.
David Rosenberg
His test for that is wages: a genuinely tight market would not produce decelerating nominal wage growth.
Pay growth is at a five-year low
The year-over-year trend in average hourly earnings, and this is as of August, is 3.1%. It's a five-year low.
David Rosenberg
Without a labor-market reaction function, he said, the initial price shock cannot feed on itself the way it did in the 1970s or over the 18 months from zero to 9% inflation in 2021 and 2022.
6. Savings Rate From 8% to 3%
The gap Rosenberg cannot square is that employment and real disposable income have barely grown while consumer spending rises above a 2% annual rate. His explanation is the savings rate, and two things funding it.
The saving habit has halved and halved again
Before COVID, what was normal was that the savings rate was 8%. People would put eight cents of every dollar they earned into the piggy bank. That number's down to three cents.
David Rosenberg
At the low end, it is borrowing rather than confidence
The credit card data have been strong, but it's not a source of strength, it's a source of desperation, but it counts as spending.
David Rosenberg
At the high end it is the wealth effect. The household net worth to disposable income ratio hit a new high in the second-quarter flow of funds.
Equity wealth now drives spending almost one for one
There's a 90% correlation today between equity wealth and consumer spending.
David Rosenberg
He described the result as an asset-based economy rather than one built on income and employment, and set out what breaks it: a stock market that does more than wobble, the wealth effect subsiding, the savings rate rising and no return of a hot labor market. He called that a reasonable assessment for 2027.
7. Bessent's November Bazooka
Rosenberg named two dates. The first is a data revision on 30 September, a fully revised set of PCE deflator figures that he thinks will make inflation look considerably lower. The second is about supply.
November 4 is the refunding announcement
November the 4th is a key day because that's a Treasury refunding announcement
David Rosenberg
And he expects the same move as autumn 2023
That's where I think that you'll see the big bazooka coming out of Scott Bessent, not from buying back bonds in the secondary market, but by flooding the market with bills and reducing issuance at the long end of the curve
David Rosenberg
His precedent is precise, and his point is that the Treasury controls supply while the Fed controls demand.
What happened the last time
10-year peaked at 5% intraday in October 2023. By the end of the year, we were down 100 basis points. Nobody saw that happening.
David Rosenberg
8. Why Gridlock Is Good
The day before the refunding is the midterm election, and Rosenberg has written a report on what happens when a party loses unified control.
The deficits have no precedent
We've been running this thing six years in a row of 5%-plus deficit-to-GDP ratios. I mean, FDR never did that in the 1930s with the New Deal.
David Rosenberg
He put the odds of the Democrats taking the House at about 90%, called the Senate a toss-up, and said the House is all that is needed for fiscal policy to move to neutral.
He quoted Herb Stein on it
Anything that can't last forever, by definition won't.
David Rosenberg
And drew the conclusion for the asset class
Fiscal gridlock is good for bonds.
David Rosenberg
The mechanism, as he was careful to put it, is not fiscal contraction: moving from stimulus to neutral is enough to subtract from aggregate demand growth. He also said the setup means an investor does not have to act immediately, because early November is not far away.
9. Where to Hide in Stocks
On equities, Rosenberg's concern is not earnings but structure. The multiple has contracted on the real-rate move, and real rates are rising while real growth decelerates rather than accelerates.
Concentration is the first problem
You've got the top 10 stocks accounting for over 40% of the S&P 500
David Rosenberg
The second is correlation. Outside healthcare and consumer staples, he said, the other sectors have become correlated to a single trade.
Sectors that were not tech have become tech
Utilities have become tech. Consumer discretionary has Amazon in it, that's become tech.
David Rosenberg
With one company as the emblem
Caterpillar has become the poster child in the non-tech sector for the tech trade.
David Rosenberg
His historical comparison is the late 1990s, when not every sector moved with technology, and where the eventual damage still ran to 60% to 80% declines in Cisco, Dell, Intel, IBM and Microsoft rather than only in obvious speculative names.
His premise about manias
It will roll over, 'cause all manias roll over.
David Rosenberg
He was specific that he means the equity valuations rather than the technology itself.
That leaves two places to stand
The only two sectors in the S&P where you can hide will be consumer staples and healthcare
David Rosenberg
10. The Model Portfolio
Rosenberg said he is avoiding the S&P 500 as an index and expressing his equity view through sectors and geographies instead, and gave the allocation.
The current mix
So 50% equities, 30% bonds, 10% cash now, and 10% commodities.
David Rosenberg
He said the model portfolio is up 60% since inception a little over three years ago, with a 0.4 beta to the S&P 500 and 0.7 to a 60/40, and that Cordant Capital in Toronto manages the exchange-traded fund it inspired, listed on the Toronto exchange as ROSY. The mandate is unconstrained: it can short, and it can concentrate, though he said he has never gone to zero or 100 in anything.
His view of the alternative
Diversification is not a dirty 15-letter word. It's a blessing.
David Rosenberg
The equity exposure runs to North American pipelines, healthcare, gold, hard assets and energy infrastructure, which he described as long-term tailwinds rather than trades, plus long-standing positions in Asia, a particular liking for Japan, and Europe despite the political risk there.
His reason for Europe is the shape of the index rather than the economy: it is evenly balanced across sectors, the ECB has already raised rates and he does not think it has much left to do, and valuations are compelling. Canada, he noted, has the same concentration problem as the United States but in financials. On Asia he answered the objection that buying the region means buying Korea and Taiwan, and therefore semiconductors, by pointing at broader funds that include Singapore, Hong Kong and Thailand.
He also said the firm recently raised 10% cash, expects to de-risk further, and that the next move is likely to be adding bond duration. His monthly Strategizer publication carries a bond duration model, which he said is close to as bullish as it was in October 2023, when the firm held its nose and extended duration.
11. 280K Net Shorts
The positioning data is what turns Rosenberg's view from a forecast into a trade.
The short base on the 10-year
I think we have something crazy like 280,000 net spec short contracts on the 10-year note on the Board of Trade.
David Rosenberg
Which is the fuel
You can only imagine if they were ever forced to cover, we're gonna get the mother of short-covering rallies in the Treasury market.
David Rosenberg
He compared the sentiment to talking down the stock market in August 1982 with the multiple at about 10, and suggested this may be what Bessent wants to get ahead of.
Why nobody discusses it
Nobody talks about this 'cause bonds are boring.
David Rosenberg
And the reason he wants them
They're for sale. I wanna buy what's for sale.
David Rosenberg
12. The Summer of 2008
Rosenberg's answer to the pressure to change his inflation call was a story from his own record. In the summer of 2008 the headlines were peak oil and $150 crude, inflation was 6%, the labor market was cooling rather than cracking, home prices were falling, and the Federal Reserve shifted to a tightening bias at its June meeting, three months before Lehman failed.
He was attacked for the same call
I don't buy into the BS. I don't buy into the widespread sentiment.
David Rosenberg
What happened once oil stopped rising
It went from 6 to negative 2.
David Rosenberg
And how that forecast would have landed at the time
You'd have been carried out in a gurney and taken to the nearest psychiatric ward.
David Rosenberg
The rule he is applying
I buy into Bob Farrell's market rule number nine, which is that when all the experts and forecasts agree, something else is gonna happen.
David Rosenberg
He was explicit that he is not forecasting a collapse in anything, and that the parallel is about the inflation call rather than the credit event. On oil itself he took no view: some people tell him $200, others $60 or $70, and the answer depends on the Middle East. His one conditional is that if the $150 to $200 case is right, the result is a bad recession, because the wage contraction gets worse. His working assumption is that prices hover near current levels.
13. Bearish the Dollar
Asked about the dollar and about gold together, Rosenberg started with the currency.
The view is structural, not tactical
We are fundamentally bearish on the US dollar
David Rosenberg
His evidence is reserve composition: central banks are cutting dollar allocations and raising gold allocations, and there is still a gap between the dollar's share of global trade, roughly 20% on US trade, and the much larger share sitting on foreign central bank balance sheets. He called that gap in the process of mean reverting.
He added a policy argument. The administration wants growth bought from the rest of the world, and a weaker dollar does the same job as the tariffs, which were meant to push businesses to set up in the United States. He described that as the mercantilist approach in Washington, and said the country appears to be becoming more isolated, pointing at Mark Carney building ties with Asia and Europe and at an investment conference in Toronto that week.
The portfolio expresses it directly
This model portfolio that I've been talking about is 70% inversely correlated to the US dollar.
David Rosenberg
14. Gold's 1-Point Gap
Rosenberg wrote his first gold report at Gluskin Sheff in 2010 with the metal at $1,000 an ounce, and said the firm bought at $250 in 1999.
Gold is ballast, not a position
I don't look at gold as a trade. I look at gold as a ballast on the portfolio, no counterparty risk, no coupon risk, no reinvestment risk, no risk of earnings revisions.
David Rosenberg
His mechanical case is a persistent shortfall of supply against demand.
Demand grows faster than mined supply
Demand growth over time running roughly 2.5%.
David Rosenberg
Supply, he said, runs about 1% to 1.5% because most of the production has already been mined, and that one-point gap is what keeps the bull market going. He noted the metal almost reached $5,000 an ounce earlier this year, with roughly 20 corrections along the way, and that it triple-tested $4,000 during this year's correction and has come back about 10% since.
The demand he cares about is official rather than retail: not gold coins in a warehouse club or the Indian wedding season, but reserve managers.
The reserve share has more than doubled
That share bottomed at 10% back in the late '90s. It's now up to like 25.
David Rosenberg
He said 35% to 40% is where he would think about trimming, and that the single thing that would turn him bearish is a central bank announcing it is finished. His other support is the rate path.
He expects real rates to fall
Real rates are gonna come down. They're way too high. They're way too high for the economy to bear.
David Rosenberg
15. Recession Watch
Asked for the odds of a bear market in 2027, Rosenberg declined to make it his base case and then said the market is not pricing the risk properly. He pointed at the yield curve, with twos against tens down to about 35 basis points and not inverted, and at what saved the last inversion: roughly $2 trillion of fiscal stimulus that offset the Fed, plus the AI capital-spending boom that began in late 2022.
There is no equivalent cushion now
I am on recession watch.
David Rosenberg
But it is not the forecast
Recession is not my base case forecast right now, but I think the odds are much higher than what's priced into any asset class.
David Rosenberg
He described the economy as a 1.5% to 2% one rather than 2.5% to 3%, trending lower and softening even while it looks resilient, and said he has more confidence in the direction of growth and inflation than in calling multiple quarters of contraction. His positioning follows from that: slower real growth, lower inflation, and a defensive portfolio.
What worries him most about equities is not the economy at all. The 2022 drawdown of 25% to 30% came without a recession, and the tech problems of March 2000 preceded the recession by a year. His concern is the concentration and correlation, and what happens to everyone if it unwinds.
The industry's advice at the top
When the music stops, your head gets sliced off.
David Rosenberg
He cited Chuck Prince's line about dancing in the summer of 2007 as the model for what investors will be told. The positioning data he finds most alarming is on the other side of the ledger from the bond shorts.
Household equity ownership is at a record
72% of household financial assets are in equities.
David Rosenberg
And the other side of that
Only 7% are in bonds because who wants to own bonds? They're too boring.
David Rosenberg
Everyone is positioned the same way
Everybody is all in.
David Rosenberg
He noted the mutual fund cash ratio down to almost 1% and asked what a redemption cycle would do. The demographic version is what troubles him more: the median baby boomer is around 70, against 45 at the last technology bear market.
Boomer equity weightings are twice what he thinks they should be
The boomers have 60% of their financial asset mix in equities. It's crazy.
David Rosenberg
He was clear he will never be out of the market, and that the question is balance rather than direction: beta, Sharpe ratio, potential drawdown in a bad scenario, and what is being done to reduce volatility.
Which is his objection to the standard answer
A 60/40 will not help you in a bear market.
David Rosenberg
Bonus Insights
Asked what the 12 years at Gluskin Sheff taught him that nothing else could, Rosenberg gave a one-word answer and then explained it as knowing where to draw the line between having backbone and being stubborn.
The lesson from sitting with portfolio managers
The best ones cut their losses. The best ones were the ones that admitted they made a mistake.
David Rosenberg
Because the arithmetic of a drawdown is brutal
Trying to claw yourself out of a 40% decline could take you years to do.
David Rosenberg
He said the worst thing an investor can do is stick with a bad call, and that Gluskin Sheff rather than Merrill Lynch is where he learned to turn macro views into a portfolio, because he sat on the investment desk with the managers every day.
More than half the market is now passive index investing with no thought behind it, he added, while parts of the world he likes have outperformed the S&P 500 over the past couple of years. He writes Breakfast with Dave daily, where readers can see where he is leaning before he moves. He mentioned he had already de-risked once and expects to do more, on the principle that nobody makes money until a profit is booked. Anyone who wants the model portfolio can find it through a free trial on the Rosenberg Research site, and he gave out his own email address on air.
Rosenberg's bottom line is that the bond market has priced a Fed path he does not believe, that the inflation everyone is discussing is an oil tax landing on decelerating wages, and that the trade is to buy the duration nobody wants while holding gold, hard assets and two uncorrelated equity sectors against the concentration risk in the index.
Products, Companies & Tools Mentioned
Rosenberg Research (Rosenberg's firm, publisher of the daily Breakfast with Dave, the monthly Strategizer and the model portfolio behind the ROSY listing)
The Federal Reserve (The dot plots he calls a joke and says now matter more, because the chair does not give guidance)
The US Treasury (Controls the supply side; he expects the 4 November refunding to shift issuance toward bills as it did in autumn 2023)
Caterpillar (His example of a non-technology company that now trades on the AI trade)
Cisco, Dell, Intel, IBM and Microsoft (The survivors of the last technology mania, each of which still fell 60% to 80%)
Amazon (Why he counts consumer discretionary as a technology sector)
The European Central Bank (Has already raised rates, which is part of why he likes European equities)
Cordant Capital (The Toronto manager of the exchange-traded fund built on his model portfolio)
Gluskin Sheff (Where he spent 12 years on the investment desk and, he says, learned discipline)
Books & Resources Mentioned
Bob Farrell's ten market rules (Rule nine, that when all the experts agree something else happens, is the one he says he is applying)
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