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View the profiles of people named David Rosenberg. Join Facebook to connect with David Rosenberg and others you may know. Facebook gives people the power. David Rosenberg: This commodity boom could quickly turn to bust – but a better opportunity awaits Back to video Boom/bust cycles in commodities are historically pervasive events, typically lasting relatively short periods (three to four years), as can be gleaned from the Commodity Research Bureau index.

Understanding Inflation

Because of base effects, lags from the weak dollar, and the impact (which will be transitory) from commodities, we are going to be seeing a near-term deviation of rising inflation on the long-term downtrend. But money velocity will continue to contract because it is clear that households are in a period of frugality and debt retrenchment that transcends the impact of the pandemic on consumer behavior.

A Little History Can Go a Long Way

The lesson from the “Roaring Twenties” and the 1930s is that bonds can rally in the face of a stock market rebound, in the face of a growth rebound, and in the face of an inflation rebound, understanding that all of this is “temporary.” This is a tougher sell today for an investor base that considers a long-term horizon to be lunch next week, but the transitory nature of everything we are seeing right now, in the annals of economic history, will prove to have been a blip on the screen.

Bonds Shaken and Stirred

Treasury market sentiment is wildly bearish, and our bond duration model is flashing a “buy” signal. But the reflation “animal spirits” have taken over and it is difficult to know how far this yield overshoot can go. But in the end, it’s all about the Fed cycle. You don’t have bear markets in Treasuries when the Fed is not in a tightening phase.

Core Inflation is Vanishing (Contrary to What You Hear)

Well, we’ll have to wait a bit longer for the inflation bogeyman to show up after the release of the February CPI report. The headline came in as expected but the surprise was in the core ex-food & energy index, which came in light against expectations. Now, let’s assess the pattern in recent months, because the “momentum” in underlying inflation is actually subsiding — it’s going in the opposite direction as to what the inflation-phobes have been telling you.

Update on High Yield Valuations

Our multivariate regression model, which we use to assess the “fair value” of yields in the high yield market, suggests valuations have improved since the end of 2020. Nonetheless, we believe the high yield market is quite fully valued.

Moving Away From the Crowd

Speculators are long stocks, short Treasuries and short the U.S. dollar. This hasn’t happened very often in recent history. In fact, since 2010, we count three other instances where positioning was similar to what it is today — early-2011, late-2013 and early-2018. We realize this might be hard to believe given prevailing market sentiment, but when positioning becomes one-sided, it usually pays to go the other way.

Nice Canadian Jobs Jump but Still Almost 1 Million Jobs Shy of Where We “Should Be”

Well, that was an upside surprise, and adding more verve to a Canadian dollar, which had already been getting a lift from a rapid improvement in commodity markets. The combination of economic re-opening, the positive terms-of-trade shock and huge policy stimulus played a strong role in boosting Canadian employment by 259k in February. While the data were encouraging, the scarring in the labor market is rather evident. There are long-term structural issues that cannot be summarily dismissed.

Jim Bianco

These snippets are from Weekly Buffet with Dave, a Rosenberg Research publication that compiles the best articles of the week from Dave’s daily reports. To access the full report, sign up for a free trial.