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

Key Concepts

• Disinflationary Outlook: David Rosenberg maintains a contrarian view, predicting a significant fall in inflation in 2026, contrary to market consensus.
• Federal Reserve Policy: Discussion centers on the upcoming Fed Chair appointment and the importance of a “forecast dependent” rather than “data dependent” approach to monetary policy.
• AI & Energy: The AI boom is viewed as a new “Cold War” driven by energy demand, with China potentially holding a strategic advantage due to its nuclear energy capacity.
• Market Bifurcation: The US economy remains uneven, with AI and high-end consumer spending driving gains while other sectors lag.
• Yen Trade Opportunity: A long Yen position is presented as a potential trade based on deflationary expectations and US-Japan rate differentials.

US Economic Outlook & Federal Reserve Policy (December 24, 2025)

The discussion began framing a disagreement between host Eric Townsend’s view of early-stage secular inflation and David Rosenberg’s expectation of disinflation. Rosenberg argues the Fed’s reliance on “data dependency” is flawed, as economic data is backward-looking and policy impacts are delayed by approximately a year. He advocates for a “forecast dependent” approach, aligning with Stephen Myron’s philosophy, focusing on future inflation rather than current levels. He believes inflation will fall back to target, potentially even below, by the second quarter of 2026, attributing current inflation to temporary factors and a cooling labor market. He cited Jerome Powell’s statements regarding core inflation adjusting for tariffs as supporting evidence. The upcoming appointment of a new Fed Chair, with Donald Trump considering Kevin Hasset and Kevin Warsh, was discussed. Rosenberg favors Warsh due to his central bank experience, fearing Hasset would be a mere administration spokesperson. The shifting composition of voting members on the FOMC was also highlighted as a key factor.

Macroeconomic Landscape & Market Bifurcation

Rosenberg described the US economy as highly uneven, a “K-shaped” recovery where approximately 40% of S&P 500 companies haven’t risen in value this year despite overall market gains. Capital expenditure is bifurcated, with strong investment in AI offsetting weakness elsewhere. Consumer spending is largely driven by the top 10% of income earners, fueled by equity wealth effects. The labor market is viewed as cooling, attributed to demand-side factors (declining real wages, rising unemployment, increasing participation rates) rather than supply-side constraints. He drew a parallel to the summer of 2008, when high oil prices fueled inflation fears despite an impending recession, suggesting a similar potential for inflation to collapse unexpectedly. Warren Buffett’s unusually large cash holdings (over 30% of his portfolio) were highlighted as a signal of caution. The S&P 500’s performance disparity – only 17% of companies hitting new all-time highs on a day the index itself did – was cited as evidence of market fragility.

Rosenberg Research & Services

Rosenberg Research now serves 2,300 clients in 40 countries with a geographically diversified client base. A key offering is 24/7 client access via email, consuming approximately 20% of Rosenberg’s time. A two-week free trial to all Rosenberg Research services is available to Macrovoices listeners via informationresearch.com or droenbergrossenbergresearch.com. The “information hotbox” – direct access to Rosenberg – is considered a major success factor.

Trade Idea: Long Yen Position

A core trade discussed was a long Yen position predicated on a potential deflationary scare and subsequent aggressive rate cuts by the Federal Reserve. The rationale is that compressing US-Japan rate differentials would strengthen the Yen, currently trading at historically cheap levels. The proposed trade involves December 2026 Yen futures around 66, coupled with December 4th 66 calls at approximately 24 points (3.6-6% of the underlying). This structure aims for open-ended upside potential while defining risk. Low implied volatility on the Yen makes gamma relatively inexpensive and reduces Vega risk.

The AI Race: A New Cold War & Energy Constraints

Rosenberg presented a compelling argument that the AI race is not comparable to the public internet boom, but rather to the Cold War, with existential implications for US and Chinese economic and military dominance. He believes the core issue isn’t GPU technology or large language models, but spare electricity generation capacity. He predicted significant demand from AI data centers will lead to calls for electricity rationing, but national security concerns will prevent throttling AI development. He stated, “AI is going to consume a shitload of electricity.” China’s proactive planning and lead in nuclear energy (both conventional and thorium) were highlighted as a significant advantage, noting China has more reactors planned/under construction than the entire US operating fleet. He criticized the US’s track record on large-scale construction projects, citing the Baraka project in the UAE as a successful comparison point to the delayed and over-budget Vogtle plant in Georgia. He predicted a future need for a “Manhattan project of natural gas fired power plant construction” in the late 2020s/early 2030s.

Asset Class Analysis & Outlook

• US Dollar: A bearish outlook was maintained, citing a well-established downward trend and a break below key support levels (98), anticipating a retest of the year lows around 96.
• Crude Oil: A shift to slight backwardation in the forward curve prompted a more positive outlook, suggesting a potential bottom at $55. Breaking above the 100-day moving average (60.26 WTI) would confirm a stronger rally. A long CLZ6Z7 spread trade was highlighted as performing well.
• Gold: A breakout above $2400 activated measured move targets in the $4900-$5100 range, but caution was advised due to extreme overbought conditions and a potential retest of the breakout zone around $2370.
• Uranium: Goldman Sachs’ recent bullish note was seen as a catalyst for institutional investment, despite Macrovoices having covered the bullish fundamentals for years. Asymmetric upside potential was noted.
• 10-Year Treasury Note: Consolidation within the 4.10-4.20 range was expected through the holiday period, awaiting January economic data for a potential breakout.

Conclusion

The discussion presented a strongly contrarian view on the economic outlook, emphasizing the potential for disinflation and the significant implications of the AI race. The analysis highlighted the bifurcated nature of the US economy and the importance of energy considerations in the context of AI development. The detailed trade idea on the Yen and the asset class analysis provide actionable insights for investors navigating a complex and evolving market landscape. The overarching takeaway is a cautious optimism tempered by an awareness of potential risks and the need for a diversified, forward-looking investment strategy.