David Rosenberg: A number of U.S. economic data points flashing warning signs
Gluskin Sheff + Associates Chief Economist and Strategist David Rosenberg is sounding the alarm, predicting the world is hurtling toward another financial crisis within the next four years.
“That’s an easy question to answer, and it’s yes, I think that we will [have a financial crisis] and it could happen even sooner,” he told BNN Bloomberg Commentator Andrew McCreath in an interview. “You don’t go through a massively-leveraged cycle like we did without there being a payback.”
Rosenberg said there are myriad bubbles emerging, but he expects Corporate America’s debt binge will ultimately be to blame for a redux of the Great Financial Crisis of the late aughts.
“There’s bubbles everywhere, but the one I think that’s most insidious is the bubble on U.S. corporate balance sheets,” he said. “We have a situation where corporate debt to GDP in the United States, you look at that chart, it’s up to roughly 50 per cent. It’s the junkiest bond market of all time.”
Rosenberg, who accurately predicted the meltdown in the U.S. subprime mortgage market in the lead-up to the last financial crisis, said he’s seeing parallels between that event and the current degradation in corporate debt quality.
“Look at the spread between CCC-rated credit and BBs: the spread has widened out dramatically and it looks a lot like the mortgage spreads in ,” he said. “When you think about ‘what should I have been looking at, what was the canary in the coal mine in 06-07,’ it was the junkiest parts of the mortgage market. Those spreads widened out before the stock market peaked.”
“Right now, the riskiest part of the corporate bond market are doing the exact same thing.”