‘Shocking’ inflation numbers will fall back to earth and hurt reopening trades, economist David Rosenberg predicts

Economist David Rosenberg believes the bond market is getting inflation right and yields shouldn’t trade at higher levels.

His reasoning: Inflation as a temporary phenomenon caused by enormous pent-up demand and supply chain issues connected to the coronavirus pandemic.

“The numbers have been shocking to the upside, no doubt about it. But it’s pretty easily explainable,” the Rosenberg Research president told CNBC’s “Trading Nation” on Friday. “I don’t understand why people want to superimpose these last couple of months into the future.”

So far, the bond market is shrugging off inflation. The benchmark 10-year Treasury Note yield hit its lowest level since March 3 on Friday and closed at 1.45%. The yield is off 7% over the last week and down almost 11% over the past month.

Sliding yields have been on Rosenberg’s radar for months.

In late February on “Trading Nation,” Rosenberg called the bond market “radically oversold” and predicted the 10-year yield would retreat to 1%. At the time, the yield was around 1.5%.

“There is just so much noise and distortion in the data,” said Rosenberg, who served as Merrill Lynch’s top North American economist from 2002 to 2009. “The most dangerous thing anybody can do is extrapolate what’s happening now.”

In a note to investors on Friday, he wrote “I refuse to hyperventilate over inflation.” He believes the other side of surging growth is a plateau.

“That’s the story for the second half of the year… The bond market is sniffing that out right now,” Rosenberg said. “My forecast is slower growth, inflation peaking out and rolling over and a bull flattening in the yield curve.”

It’s an outlook that would spell trouble for the reopening trade. Rosenberg predicts consumer cyclicals, a major part of it, will fall out of favor later this year.

“Growth should reclaim leadership over value in the stock market,” he said. “You want to be more in defensive growth and in areas of the market that are going to benefit from a lower bond yield.”

Rosenberg may be expecting trouble for the reopening trade, but he also believes bitcoin is prime for a resurgence. The cryptocurrency has been getting walloped, down 38% over the past two months.

He also wrote on Friday about encouraging signs that show bitcoin is getting ready for “another shot upwards.” He further suggested technicals indicate overbought conditions are unwinding.

Yet, he still won’t completely embrace the asset.

“I don’t own bitcoin. I never recommended anybody to buy it. It seems to me that crypto is here to stay. There is no doubt about it as a facilitator, of a medium of exchange,” he said. “Bitcoin, to me, is a speculative trade. I don’t see it as a bonafide investment.”

Rosenberg prefers gold, an asset he has owned for years.

“I just say buy the gold,” Rosenberg said. “Gold has 1/5 of the volatility that bitcoin has.”

Gold is up 8% over the past two months. However, it’s off about one percent so far this year.