MacroVoices #552 David Rosenberg: Navigating The Noise

David Rosenberg argues that tariffs produced a temporary inflation bump rather than lasting price pressure: year-over-year core goods CPI has slowed from 1.5% a year ago to below 0.7%, a four-year low, as exporters, importers and affected-sector margins absorbed much of the cost. Energy remains a near-term risk, but higher prices would need to feed into wages to create persistent inflation. Rosenberg sees wages decelerating and no post-COVID-style surge in quits, hiring or openings; he is watching average hourly earnings and collective bargaining for signs of renewed pressure. He says labor costs matter more than energy: labor represents about 30% of retail-level costs, which he calls six times more powerful, while diesel’s freight pass-through amounts to roughly a 5% inflation impulse.

Rosenberg attributes higher Treasury yields mainly to a shift in perceived Federal Reserve policy, not the increase in government debt from $39 trillion to $40 trillion. The 10-year yield was below 4% in February and has risen about 90 basis points since Warsh took over in June, when it was around 4.4%; markets have moved from pricing rate cuts to further hikes, though Rosenberg does not expect four Fed increases. He criticizes Warsh’s emphasis on headline inflation and the share of the PCE deflator rising faster than 3%, arguing that it gives unlike items equal weight. Warsh previously cited the Dallas Fed trimmed-mean measure, which Rosenberg puts at 2.3%, 0.3 percentage points above target. In Rosenberg’s view, the absence of a clear policy framework has left markets interpreting Warsh as hawkish.

Rosenberg sees housing as a substantial but delayed source of disinflation. New-home inventory stands at 8.5 months of supply, average new-home prices are down 8.5% year over year, and rents are deflating amid excess multifamily supply. He says current rents and home prices would imply near-zero CPI and core inflation well below 2% once shelter costs filter through. He also expects divided government after the November 3 midterms to constrain deficit growth and cool demand, citing an 80% historical frequency of slower growth, lower inflation and falling bond yields in the two years after a shift from one-party control to gridlock. He says $2 trillion in Biden- and Trump-era stimulus checks accounted for more than half of the inflation rise from 0% to 9% in 2020–22, while the One Big Beautiful Bill’s tax provisions were one-off support.

For long-term yields, Rosenberg says the Treasury’s November 4 funding announcement could matter more than a $6 billion buyback, which is small beside roughly $1 trillion in daily market turnover. A shift from bonds and notes toward bills, as in November 2023, could support bonds; he points to the roughly 100-basis-point 10-year yield rally over slightly more than two months after that refunding announcement. He has begun adding two-year notes and says the bond market is under-owned, with many investors short bond futures and options. Hyperscaler borrowing adds to corporate demand for funds, with three of the four largest hyperscalers net free-cash-flow negative, while Chinese open-source AI competition could eventually make AI a source of disinflation. Rosenberg says productivity gains are still ahead and maintains his bond-market view despite recent losses.

The market outlook was more defensive from Patrick. He said Treasury selling was accelerating across the curve, with the 10-year yield at 5.25% and later above 5.30%, and the 30-year above 5.60%; a softer inflation report helped the short end but not the long end. Patrick warned that higher energy and borrowing costs could squeeze household spending more than create lasting inflation, as weakness spreads through housing and other rate-sensitive businesses. Both speakers described narrow equity-market leadership: Rosenberg said the average and median U.S. stock were down 15% from their 52-week highs, while Patrick put the median S&P 500 stock 16% below its high and said only 20% of index stocks were above their 50-day moving average. Rosenberg cited weakness in regional banks, homebuilders, retailers, restaurants, hotels, cruise lines, theme parks and small caps.

Patrick also highlighted a stronger dollar, with the dollar index at a 52-week high and the euro at a 52-week low, amid wider rate differentials and Europe’s terms-of-trade pressures. With the euro below 1.13, he saw 1.10 or 1.08 as possible downside levels. Oil had retreated after trading above $100 in mid-September and could remain range-bound through October, depending on a peace deal, increased flows through the Strait of Hormuz or further escalation. Both speakers viewed gold’s decline as a correction rather than an ended long-term bull market, though Patrick saw scope for a retest of $4,000 or a liquidity-driven dip toward $3,800; Rosenberg said central-bank diversification into gold remains the key demand driver. Patrick also noted that Nasdaq speculative positioning jumped from the 80th to the 100th percentile in a week, mainly through short covering, while S&P positioning was at the 36th percentile and Russell positioning at the 7th.