There’s more than a little connective tissue between U.S. President Donald Trump’s decision to axe Bureau of Labor Statistics (BLS) commissioner Erika McEntarfer and his criticisms of Federal Reserve Chair Jerome Powell. Both are political in the worst way. By calling into question the independence of the two agencies, the White House is signalling to global investors that its lack of respect for democratic norms extends to economic policy and governance.
That doesn’t mean investors should step back from U.S. asset markets though according to David Rosenberg, founder and president of Rosenberg Research & Associates Inc. in Toronto.
“I don’t think this is a case for abandoning the U.S. market,” Rosenberg said in an interview Wednesday. “You want to invest — in the U.S. or globally — with a view as to how all these choices that the president is making are going to affect your investments. … When you look at Trump, you can throw your hands up in the air in frustration, or say ‘how do I invest around this?'”
His advice is to bet on sectors positioned to benefit from trade protectionism and deregulation.
“The reason why the financials have been a great place to be has been because of his deregulation thrust,” Rosenberg said.
Watch for rate cuts too. “I think the yield curve is going to steepen,” he said. “It’ll happen primarily because we’re going to get much lower short-term interest rates. It’s an open question as to what long-term interest rates do, especially if inflation proves to be sticky.”
Rosenberg believes the McEntarfer decision was a poor one.
“To be fired as the BLS commissioner isn’t the sort of thing that happens every day, and being accused by the president of rigging and politically manipulating the data is problematic, especially because it isn’t true,” he said. “And then to go and replace her with a bona fide sycophant with no experience in statistics, and who was the chief economist of the Heritage Foundation, is a dog with a lot of hair on it.”
That chief economist is E.J. Antoni. He will face a Senate confirmation process that’s bound to be fiery.
“Now we have a trust issue,” Rosenberg said of future BLS reports. That wasn’t the case prior to McEntarfer’s dismissal.
“We’re going to have to seek out other sources, which do exist. We have data from ADP, Intuit and Indeed, and there is an array of information on employment in all of the regional Federal Reserve surveys. … They’re going to take on added importance.”