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One of the very few economists that foresaw the financial crisis was Canadian David Rosenberg. He was the chief North American economist at Merrill Lynch but recently moved back to Canada and joined the boutique asset management firm of Gluskin Sheff in Toronto.
While the FOMC has held the Fed Funds Rate at zero to 0.25 since December, a recent report prepared for the San Francisco Fed claims that this policy will have to be continued for much longer than first anticipated.
In a recent report, Rosenberg shows the chart below and points out that the Fed may very well have stopped easing. Although the Fed’s balance sheet exploded in 2008 as they went on a liquidity rampage, it hasn’t budged so far this year. The ‘real’ rate (adjusted for inflation) is closer to +0.77%, having rapidly recovered from the extreme low in late 2008:
There are several relevant variables to watch: the 3 month Treasury Bill rate; Dr. Copper - which has already signaled that the worst is over; and the Baltic Dry Index which has now surpassed the March 2009 swing highs and begun a new uptrend.
You can sign up to receive Rosenberg’s daily market commentary from Gluskin Sheff.
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