MacroVoices #512 David Rosenberg: Will The 2025’s K become 2026’s

Episode Summary

Executive Summary: David Rosenberg argues the Fed is likely to cut more than markets expect as labor-market weakness and fading tariff effects drive disinflation in 2026. He sees a highly bifurcated U.S. economy powered by AI capex and a wealth-effect-driven top 10% consumer, but increasingly vulnerable if stocks stall or layoffs rise. The episode’s trading focus favors defensive positioning, long yen, precious metals, and uranium, while warning that AI’s energy and financing constraints could become the next major market risk.

Main Topics: Fed policy, political pressure, and likely rate cuts (Priority: 5/5): Rosenberg says the next Fed chair matters less than the incoming data, but the combination of weakening labor markets, declining wage growth, and fading tariff inflation should force the Fed into more aggressive cuts than currently priced. Disinflation outlook for 2026 (Priority: 5/5): He argues inflation is lagging and will surprise to the downside as tariff effects fade in Q1 and shelter disinflation feeds through, with core inflation already near low-twos ex-tariffs. K-shaped U.S. economy and stock-market dependence (Priority: 5/5): The U.S. economy is increasingly split between AI-driven capital spending and a high-end consumer supported by equity wealth, while lower- and middle-income households are under pressure from weak real incomes and rising essentials. AI boom: opportunity, bubble, and energy constraint (Priority: 5/5): The conversation frames AI as the trade of the decade but also as a bubble requiring huge electricity, financing, and infrastructure buildouts. Energy supply and capital-market constraints are presented as potential bottlenecks. Asset allocation and defensive positioning (Priority: 4/5): Rosenberg recommends diversification, low beta, cash, and exposure to gold/silver, uranium, yen, treasuries, utilities, aerospace defense, healthcare, and consumer staples rather than broad index exposure. Market technicals: equities, dollar, oil, metals, and bonds (Priority: 4/5): The post-game segment reviews SPX strength toward 7,000, a weakening dollar, improving crude structure, breakout gold, strong silver/platinum/palladium, and a consolidating 10-year yield around 4.1%-4.2%. Rosenberg Research product update (Priority: 2/5): Rosenberg announces plans for a macro ETF/fund on the TSX and a forthcoming book, plus a free two-week research trial for listeners.

Key Arguments: The Fed is more likely to cut rates more aggressively than consensus because current policy relies too much on backward-looking data while labor-market slack is building. Inflation should fall faster than expected in 2026 because tariff-driven price pressure is temporary and shelter inflation will eventually reflect falling home prices and rents. The labor market, not commodity prices, is the key determinant of sustainable inflation; cooling wages and rising unemployment point to demand destruction, not supply scarcity. The U.S. economy is split: AI capex is booming while non-AI capital spending is contracting, and consumer spending is being sustained mainly by wealthier households. If the stock market stops rising, the economy faces serious downside because the top 10% are carrying consumption through the equity wealth effect. AI is not just a tech trend but a geopolitical arms race; the binding constraint is electricity generation, not model quality alone. The AI boom is increasingly financed by debt and is vulnerable to widening credit spreads and power shortages. Gold’s long bull market is driven more by central-bank reserve diversification than by inflation. Uranium may be on the cusp of a major institutional re-rating now that large firms such as Goldman Sachs are highlighting structural supply deficits. A defensive, diversified portfolio with low beta, cash, and selective thematic exposure is preferable to broad market exposure in a bubble-like environment.

Data Points: S&P 500 weekly move: Up 280 bps to 6909 - Macro scoreboard as of Dec. 24, 2025; new all-time high with 7000 in play. U.S. Dollar Index: Down 47 bps to 97.94 - Weak dollar trend noted in weekly scoreboard and post-game analysis. WTI crude oil (Feb): Up 505 bps to 58.63 - Bouncing off year lows; curve structure discussed as a possible bullish change. Gold (Feb): Up 306 bps to 4510 - All-time new high; precious metals strength remains a key theme. Copper (Mar): Up 387 bps to 5.643 - Continues climbing toward year highs amid AI/data-center demand narrative. Uranium (Dec): Up 396 bps to 81.40 - Described as finally waking up from slumber. U.S. 10-year Treasury yield: 4.17% - Up 2 bps in the weekly scoreboard; later described as range-bound around 4.10%-4.20%. SP 500 membership breadth: Almost 40% of constituents had not risen this year - Used to illustrate market bifurcation despite index-level gains. SP 500 new-high participation: Only 17% of constituents hit a new all-time high on the day the index hit a high - Supports the argument that the rally is narrow and AI-driven. AI-related capex growth: 17% annual rate - Volume terms for AI and related capital spending so far in 2025. Non-AI capex growth: -3% - Shows old-economy capex weakness outside AI. Technology industrial production trend: +12% (12-month trend) - In contrast, non-tech industrial production is described as almost flat. Real disposable personal income: Almost -1% annual rate since April - Used to argue the consumer economy is under strain despite headline spending growth. Consumer spending: Almost +2% annual rate - Highlights the income-spending gap supported by wealth effects. U.S. unemployment rate: 4.6% - Rosenberg cites this as already above the high end of the Fed’s cycle forecast. Tax refund windfall usage estimate: 50% diverted to necessities - He estimates healthcare premiums, auto insurance, property insurance, and electricity will absorb much of refunds. Layoff announcements due to AI: Almost 40,000 in Oct-Nov 2025 - Challenger Gray and Christmas cited as evidence AI is beginning to affect labor demand. Gold bull market starting point: 1999 - Tied to the Washington Agreement and central-bank selling ending. Goldman structural uranium deficit timing: Next few years - Post-game argues this institutional endorsement could re-rate uranium. Schiller CAPE: Pressing against 40 - Used to support the claim that equities are in a bubble phase. Bubble threshold cited: Above 35 CAPE - Rosenberg says CAPE above 35 has historically implied negative forward returns across multiple horizons. Model portfolio beta: 0.4 - Rosenberg uses this to illustrate defensive positioning. Model portfolio Sharpe ratio: 2.5 - Used to show risk-adjusted performance of his strategy. Model portfolio yield: Almost 3% - Supports income-oriented defensive allocation. Model portfolio performance since inception: Up 50% - Since launch about three years earlier. Model portfolio performance this year: Up 25% - Presented as evidence that a cautious macro approach can still perform. Warren Buffett cash allocation: Over 30% / about $380 billion in cash - Cited as a signal that liquidity and caution matter. Yen trade level: December 2026 futures around 66; 66 calls about 24 points - Used in the trade-of-the-week long-yen options structure. Crude oil technical levels: $58-$59 area; 100-day MA near $60.26 - Identified as key resistance/confirmation levels. Gold breakout level: Above $4,400, now near $4,500 - Post-game notes measured-move targets toward $4,900-$5,100. Silver measured move target: 72 - Described as having gone full-on parabolic.

Pivotal Quotes: "the Fed should be more forecast dependent than data dependent because the data inherently that they look at are backward looking and lagged in nature" — David Rosenberg: Explaining why he thinks the Fed risks a policy mistake if it waits for lagging inflation data. "we're in a bubble phase. It's like basically we're playing extra innings" — David Rosenberg: His valuation-based view of the U.S. equity market, especially the CAPE multiple near 40. "AI is going to consume a shitload of electricity" — Eric Townsend: Post-game commentary on AI’s power-demand constraint and national-security implications.

Implications: Listeners should expect a softer inflation backdrop, more Fed easing, and a market increasingly driven by a narrow AI/wealth-effect structure. Risk management, liquidity, and selective defensive themes matter more than broad beta, while energy, labor, and power-capacity constraints may become major 2026 catalysts.