MacroVoices #552 David Rosenberg: Navigating The Noise

Macro Voices

David Rosenberg joins Macro Voices to argue that energy shocks and tariffs are unlikely to cause sustained inflation without corresponding wage growth, emphasizing the labor market as the

Key takeaways

• David Rosenberg argues sustained inflation requires price shocks to feed into wages, which is currently absent despite energy and tariff pressures.
• Kevin Warsh's hawkish pivot at the Fed has reset market expectations from rate cuts to hikes, driving real yields up significantly since June.

Main topics

• Inflation dynamics & wage-price spirals
• Federal Reserve policy & Kevin Warsh regime shift

Notable quotes

"Inflation is not a level. Inflation is a rate of change."

Conclusion

The episode provides a contrarian macroeconomic framework emphasizing that without wage growth, energy

Transcript preview

Speaker 5 (0:00) Historically, when a one-party power swings to a two-party system with gridlock, 80 % of the time the economy slows, 80 % of the time inflation goes down, and 80 % of the time bond yields go down in that two-year period after a national election. Speaker 3 (0:17) That was Rosenberg Research founder, David Rosenberg. I'm Eric Townsend, and this is Macro Voices, the free weekly podcast targeting professional finance and sophisticated private investors. Episode 552 was produced October 1st, 2026. Listener response to our Macro Voices unplugged bonus episode that gave you a double dose of Michael Every last week was overwhelmingly positive. So before we dive in with Rosie, a quick housekeeping announcement. Going forward, we'll consider adding Macro Voices unplugged bonus episodes for guests like Michael and Anas Alhaji and others who just have too much to say for one episode. But out of respect for both your time and our production budget, quite frankly, we're only going to do that when the circumstances warrant. The next likely one would be when we bring Dr. Anas Alhaji back, and you can expect that before... the end of the year, certainly, and maybe even before the end of this month. We've got to work that into our schedule. That would come complete with an unplugged bonus episode. And get this, if you want to influence the content of that unplugged session, be sure to follow Anas on X because he's going to reach out to his audience for questions and topics that they want answered when we bring them back for that unplugged session. Now, it's still a few weeks away, so you've got time now to make your request known to Anas by tweeting them. Don't send them to us because Anas is collecting that information. He's going to assimilate it, and we'll figure out what you guys want us to discuss in Anas' first appearance in a unplugged session, which we'll do after a regular format. Another thing I want to announce as I have this opportunity is we're definitely committed to keeping the flagship. podcast interview length to a target of 45 to 55 minutes and not more. That's out of respect for your time because we know you're busy. If you want the extended content, we'll always put it in a separate episode. So what you can expect when we bring Honest back is a fairly tight update on the market and what's going on in the Middle East, and then a much broader discussion in the follow-on, which will probably come a day later again. That one will be content that you've requested by tweeting it to Anas. Now let's dive into Rosie's latest interview, which covers secular inflation, why Rosie doesn't buy the popular narrative, the AI boom and what could bust it, midterm elections as a setup for economic slowdown, as well as Washington gridlock, and much, much more. That's all coming up in today's episode of Macro Voices. And I'm Patrick Ceresna. Let's dive straight into this interview. Joining me now is David Rosenberg, also known as a bestselling author. New book coming out called Bear in the Bullring. That's October 6th, already available for pre-order on Amazon. New ETF, Rosie ETF, boy, perfectly named. We'll come back to the book and the ETF at the end of the interview. But David, I wanted to get you back on the program for one specific reason, which is it's hard to find anybody that is not flipped to inflationist and maybe even inflation alarmist because, well, it's in vogue right now. Does anyone I know in this industry I can count on not to be an inflationist just because it's in vogue? It's David Rosenberg. So is inflation the thing we need to focus on? And if not, why not? Speaker 5 (3:42) I'm never going to say that we shouldn't be watching inflation because that would be an irresponsible comment to make. But if you're going to ask me, is inflation the risk that the media and pundits on the business cable shows and Wall Street research reports, is inflation the big threat that it's made out to be? In my opinion, it's not. And what I find interesting is that the same people now talking about inflation because of energy, and specifically crack spreads and diesel, We're the same people that were yelling about inflation back in the spring, summer, and fall of last year because of the Trump tariffs. And we were going to have a mountain of product inflation, imported inflation. And you know what? That never really did happen. It's not as if we didn't get a temporary bump in inflation from the tariffs, but you really have to strain your eye to see it. Speaker 5 (4:55) If it was going to show up in any persistent way, it would show up in the core goods CPI index. And what's interesting is that a year ago, the year-over-year trend in the core goods CPI was running at 1.5%. Today, it's running below 0.7%. It's at a four-year low. So I would just ask the question, if we didn't get... The big inflation from the big tariffs, and when you look at what the net effective tariff rate did, I mean, it went up a whole lot. The biggest increase since the early to mid-1930s. But there was never a sustained pass-through to final inflation where you think it would hit the most, which was in the core product sector. And in fact, it's been decelerating over the past year. Somebody must have eaten the tariff increase. Was it the exporter? who didn't want to sacrifice market share? Was it the importer at the border? Did it show up in profit margins in the affected sectors along the way? Or maybe all three. But the proof of the pudding is in the eating. And I asked the question, and we could extend the conversation further, but I would ask the people that think that because of a one-trick pony, which was... which is energy. Why will that cause the sustained inflation that the Trump tariffs have managed to do? Speaker 3 (6:24) Well, you make an excellent point. And I think it's also echoed. I had Harley Bassman on a couple of weeks ago. He says, boy, the inflation narrative sure does sound good, easy to talk to, but the data says it's not happening. And he had a couple of slides up talking about what's going on with break-evens and CPI and so forth and said that the numbers just don't support this narrative. And so that definitely confirms what you're saying. But here's why I'm a little bit stuck on this. I think the people that are worried about crude oil prices spiking, you know, that's probably going to be shorter term. But what we need is finished products. And when they blow refineries up, a lot of them around the world, we didn't have enough of those already. And they don't come back when the war ends. It takes years to rebuild that stuff. So what I see is a potential. driver. And I don't know how it gets balanced out against other stuff is if you keep blowing refineries up and you can't make the diesel fuel out of the crude oil, you end up with plenty of crude oil and no diesel fuel. Is that a potential inflation risk that we wouldn't be able to mitigate? I see that Speaker 5 (7:27) as a risk as to why we're not going to get a whole lot of price relief. So this won't be a case like you had. For example, in Gulf War I, I mean, I have to go all the way back to 1990 when probably most of the listeners were in grade school, you know, and you went from 20 to 40 on WTI and then quickly reversed right back to 20 once the war ended. So I would say that, no, I don't think that your thesis leads to continuously higher refined product increases in energy. I think that will just stay at an elevated level. And the reality is that even though the conflict is ongoing between the U.S. and Iran, we are seeing traffic flow through Hormuz that we haven't seen since the beginning of the war. And we're seeing exports in the Gulf region starting to be ramped up pretty significantly, especially in that very critical Saudi Arabia east-west pipeline. So I think that... The relief won't come from prices coming down significantly. They'll stay elevated. But remember that inflation is not a level. Inflation is a rate of change. So even if diesel stays where it is, if gasoline prices stay where they are, maybe they come down a little bit. In 12 months' time, it still falls out of the data. You're not going to get as big of a push down in inflation as you would, obviously, arithmetically, if energy prices, you know. or to even reverse half of the big run-up. But all you need to have the momentum stop is to just have energy prices peak out, which is what I think is going to happen. The other part of it is how we want to look at inflation, because it's not really a moment in time. The problem is that, you know, we live in the here and now. We're inundated with news, social media. We have our Bloomberg terminals. We could see the tickers every second. Speaker 4 (9:30) But inflation is a process. Speaker 5 (9:32) Now, the reason why we had 18 months of non-transitory inflation in, say, 2021, 2022, into 2023 is because it did feed into wages. That is necessary for this to become truly a sustained inflationary development as opposed to just a shock Speaker 4 (9:53) that lasts a few months. Speaker 5 (9:54) Now, the reason we had the wage price spiral And it lasted 18 months. It really wasn't transitory when all was said and done. But then again, it wasn't the 1970s either. You got to remember the 1970s, we had repeated oil shocks, but the economy was unionized and everybody had a COLA clause. So the labor market had bargaining power. Now for a period coming out of COVID, because the government, through its endless stupidity, not just decided to give people $2 trillion of stimulus checks to spend just as the economy reopened, but the government was paying people not to work for two years and paying them more. So then the business sector, when the economy reopened, had to pay up even more to attract labor back into the market. So you had this wage-price spiral. This is what's critical. Prices have to feed into wages. Because if the price shock doesn't feed into wages, It hits the wall in the labor market. And all you end up with is negative real wages that then trigger an environment of negative real consumer demand, which means that, yes, you will get inflation in, say, fuels and possibly in the food as well. When you look at fertilizer and the wholesale market for grains, yes, that's true. There's stuff we still have to fill our cars and we still have to eat. But the other, call it... 80-85 % of the pricing probably ends up coming under downward pressure because you get demand destruction in the more cyclical parts of the economy, in services and goods. So the stuff that you don't need, the discretionary stuff, those prices come under downward pressure. So it's a relative price game. For it to become sustained inflation for us to be worried about, you have to see it enter into the labor market. And we're not seeing it right now. And it's very interesting for anybody that wants to see a Fed official that may be pushing against Kevin Walsh, who says wages don't matter. John Williams of the New York Fed just gave a speech on September 29th talking about, we see no evidence that these price shocks are entering into wages. Therefore, the inflation situation is unlikely to become self-reinforcing. Now, people say, well, Williams was part of the transitory crowd. The thing is that... Where he got it wrong was that it fed into wages. It was a different labor market. The labor market was heating up dramatically coming out of COVID. The quits rate was surging. The hiring rate was surging. The job opening rate was surging. Labor demand was out of control. We don't have that environment today. And in fact, in nominal terms, wages are decelerating. So to me, that is going to be the catalyst for whether this turns into something. more sinister than just an energy price shock. Because if the labor market is not strong enough to cause wages to play catch up and it's not happening, then all this ends up being is almost the same thing as a tax shock. It's really akin to a tax increase. Would you consider a tax increase to be inflationary? Well, it would be if you go to your boss and you say, hey, my taxes went up, I want higher wages. But this is a tax increase. And it is not sustainable unless the labor market plays ball. And that was the missing link last year. We don't have to go back five, 10 years. We had the tariff shock. Where was the inflation? Where was the inflation from the tariff shock? It was small, and now it's totally reversed. It's faded into the rearview mirror. Why? Because it didn't filter into wages. That's the key. Besides the fact that we could sit here and talk all day long about diesel, the filter through to transportation, freight, that's about a 5 % inflation impulse. I mean, because forecasting inflation, it is a complex process. Labor is 30%, 30 % of the cost at the retail level. It's six times more powerful than energy. But we don't see labor costs minute by minute on our Bloomberg screen. We see what energy is doing. So I will say that I will reserve my judgment until I see evidence that we're seeing bargaining agreements, collective bargaining agreements start to escalate. We start to see wage trends escalate. We'll see non-farm payrolls. I think average yearly earnings will be the most important number. Until that happens, until I see the labor market respond, I'll Speaker 3 (14:40) take the other side of the bet that this is going to be a major sustainable inflationary Speaker 5 (14:45) problem for the economy. Speaker 3 (14:46) I saw another quote go by my screen that I'm pretty sure was attributed to you that I thought was really insightful, which is everybody's talking about, but the 10-year yield. And I think it was you who said the rise in yields is 90 % real rates and only 10 % inflation expectations. I thought that was a brilliant quote, but okay. Let's go to the next level. Why are we seeing right now such strength in real rates? Well, Speaker 5 (15:11) we have two things going on. The first, of course, is the fact that we have these hyperscalers dramatically increasing their CapEx commitments. And now three of the biggest of the four are now. net free cash flow negative. So they're going to the bond market and they're going to the long end of the bond market and multiple currencies to fund their CapEx boom. So what's changed is that this is no longer being funded out of their cash flows. So now you're having corporate credit demands bumping against government credit demands. And that's one of the reasons why the real rates going up is because the demand for capital is going up. People like to point to $40 trillion of government debt. With all due respect, when the 10-year Treasury note yield was last below 4 % in February, the national debt was $39 trillion. Now we're at $40. Oh, so this last trillion is we have a debt crisis on our hands. So we went from $38 trillion to $39 trillion from last October to this February. And nobody talked about that. And the 10-year note yield went below 4 % after adding a trillion dollars of debt from October 2025 to February 2026. At $39 trillion, nobody was talking about it. But now at $40, because it's a zero, everybody's talking about it. Because what people do, and I imagine they do this on your show, and I see them do it on CNBC and Fox Business and on Bloomberg TV. What's been the biggest change? because the AI spending boom was going on back in February when the 10-year note was