David Rosenberg remains analytically rigorous in his deflationary views and continues rejecting the “green shoots” scenario as a fundamentally subjective and unreliable approach to the current dynamics in the economy. The following excerpts offer his perspective on the subject.
We can understand all the angst surrounding inflation. We just don’t agree with it.
Inflation is about a sustained uptrend in the absolute price level; commodities going up only really tell us about what is happening to relative prices, that’s all. Because precious few final-state manufacturers or domestic retailers have any pricing power at all, the run-up in basic material costs either comes at the expense of profit margins or, as we just saw in the Canadian employment data, the labour market. For a taste of what we are talking about, go to Discounting by Pricier Chains Fails to Give Retail Sales a Lift on page B3 of the WSJ.
When we read about price cuts failing to lift sales volumes, we start to contemplate the prospect that this cycle is turning more Japanese with every single data point. (Japan also enjoyed sporadic ‘green shoots’ too — they are called cherry blossoms over there — and intermittent stock market rallies and bond market selloffs, but the fundamental trend was really in one direction for the last 10-15 years for the economy and the asset classes.) [Variant Perception]