"Significant Strain" Ahead For The Economy | David Rosenberg bnhgyhu.

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**David Rosenberg** (0:58)
The big risk for the economy is what happens to the stock market. Because if the high end stop spending on luxury goods and high end restaurants and cruise lines and cyclical spending, if that dries up because the stock market doesn't continue to play ball, I think this economy, especially in the second half of the year, when a lot of the short-term stimulus falls by the wayside, is going to be showing some significant strain.

**Adam Taggart** (1:34)
Welcome to Thoughtful Money. I'm its founder and your host, Adam Taggart. The administration tells us that a new golden age for the American economy is now underway and that we should see substantial material incremental GDP growth this year from the policies that it put in place through acts like the One Big Beautiful Bill, tax relief, deregulation tariffs, and new trade deals purporting to bring trillions of new dollars of foreign investment into the US. Today's guest, however, is much more skeptical of the promise of these policies as well as the overall prospects for the economy. And now the US is at war with Iran. How will that impact the situation? For guidance, we turn to the highly respected economist and award-winning researcher, David Rosenberg, founder and president of Rosenberg Research. David, thanks so much for joining us today.

**David Rosenberg** (2:24)
Great to see you again, Adam. Thanks for having me on.

**Adam Taggart** (2:27)
Hey, my pleasure. I'm very excited for this. We got to hang out in person in January, I think it was, at the Vancouver Resource Investment Conference. And we were actually on a panel together. And I kind of knew the end of the panel sort of pitched the softball about the administration's policies, because I kind of figured it was going to be like a big juicy red steak for you, and it certainly proved to be that way. We just didn't have a lot of time to talk about it in the remainder of that panel. So I wanted to bring you back here on the channel to give you as much time to elaborate on it as you want. So why don't we start there? David, why are you so skeptical of the administrations, of their purported coming benefits of their economic policies?

**David Rosenberg** (3:12)
Well, it really depends on your time horizon. If you're going to ask me, are we going to be getting decent growth in the next couple of quarters? The answer is yes. So, I'm not going to totally dismiss the impact of the income tax refunds, which are significant. The question will be how much of that will find its way into the economy.
But that's really a temporary boost, right? That is not something that any investor should be capitalizing. It's not a permanent tax cut. It's just the withholding tables allowing for these refunds that will give us two, three, four months of some better retail sales activity. But then that's just going to borrow growth into the present from the future. So, I think the second half of the year, we're going to have a bit of a vacuum on that side. So, this is not like the cash giveaway from Uncle Sam to the proletariat back in 2020-2021, which is a gift they kept on giving. So, this will have an immediate, but short-term boost to the economy.
The other aspect which has really nothing to do with the administration, I don't believe that the bonus depreciation allowance is going to lead to a phenomenal incremental increase in capital spending. Our work has shown that the impact really measure in basis points, not percentage points. But, you know, there's a lot of camouflage out there, Adam, because you can point to the economic numbers and say as a politician or a president, well, look at what my policies have done.
But I don't think that the introduction and advent and proliferation of generative AI, and ChatGPT happening towards the end of 2022, which put an end to the cyclical bear market and equities at the time. I don't think you can say, oh, well, President Trump is responsible for the AI boom, any more than, you know, President Clinton could say, well, I created the internet boom because I was around in the mid 1990s. Evolution is evolution and inflection points on the technology curve can happen with anybody in office, Democrat or Republican. That's just the beauty of the ingenuity and creativity of the US economy. The bottom line is that if you strip out the AI boom, you actually have a recession in old economy capital spending. I mean, we got those fourth quarter GDP numbers. Industrial sector cap acts was actually negative. So what we don't talk about is how this AI boom, as strong as it is, is diverting resources away from other parts of capital spending. So that's the first point I would make is that we do have an AI boom. And I'll tell you right now that our recession is probably off the table for the next several quarters, just from all these spending commitments alone. That has nothing to do with the president's policies. And then on top of that, we have up until just the past little while, we had an unrelenting bull market inequities. And so even in the face of what you can really acknowledge is a very soggy labor market. I mean, in the past year, there's been practically no growth in employment, whether you look at the non-farm payroll survey or you look at the ADP survey, there's been almost no growth in employment. But yet consumer spending has been chugging along, I'd call it roughly a 2.5% annual rate. And that's with practically no job growth when you smooth out the monthly wiggles. And real organic disposable income growth has also been close to zero. So what's happening here, that you have this widening gap between incomes and spending, which means that the savings rate has been on an epic downtrend. And that's been the primary source of support for the economy, is the fact that spending is hung in, and primarily because of the equity wealth effect for the top 10%. But that's the equity market speaking. That's not about the president. I mean, the stock market did just as well under Bill Clinton, if not better, and under Barack Obama, than it did under President Trump. That's not about the president. So we have an epic drop in the savings rate. That's accounted for half the economic growth since last spring. And yet the AI spending boom. And so that's the story of vitality in the US economy. And so my answer back to you then in Vancouver and today is that none of this has to do with presidential policy. If you're going to talk to me about the success of presidential policy, explain to me how it is that if there's one item, of course to his personal benefit and his family's benefit, which has been crypto, if Donald Trump has been so successful, why to this day is, you know, Bitcoin still roughly 50% below where it was last fall? Like has that been successful? I don't think so. So the economy is doing what it's doing. I think actually we get wrapped up in the AI craze, which is definitely adding to GDP growth. But when you do the bean count on the economy, and the major contribution has really come from the equity wealth effect on spending at the high end, that's been over half the GDP growth over the course of the past year, that has been absolutely monumental. So, the big risk for the economy is what happens to the stock market. Because if the high end stops spending on luxury goods, and high end restaurants, and cruise lines, and cyclical spending, if that dries up, because the stock market doesn't continue to play ball, I think this economy, especially in the second half of the year, when a lot of the short-term stimulus falls by the wayside, is going to be showing some significant strain.