Rosenberg, chief economist at Gluskin Sheff & Associates Inc., predicted yields on the 10-year note will drop to less than 2 percent. Faber, the publisher of the Gloom, Boom & Doom report, said he doesn’t believe they’ll fall to less than December 2008’s low of 2.08 percent. They have put booze on the line.
“If I lose the bet, I buy him a bottle of Cutty Sark, and if I win, I want a bottle of Dalwhinnie,” Rosenberg, 49, said during a radio interview today with Tom Keene on “Bloomberg Surveillance.”
If there’s a surprise in the next year, Rosenberg said, it’s going to be a slowdown in growth as opposed to acceleration.
“When I look at the contours and components of the consumer price index, I think inflation and core are going to grind down toward zero,” Rosenberg said. “If you look at the historical records, you’ll see that long-term bond yields are usually priced about 200 basis points above the rate of inflation.”
Rosenberg is known for having been early in predicting the recession. In a 2008 Bloomberg survey of 55 forecasters, his predictions for economic output, inflation and unemployment were among the more bearish. That year Rosenberg was ranked as the No. 1 economist by Brendan Wood International, which surveyed Canadian portfolio managers, and No. 2 by Institutional Investor magazine.
Faber, the 64-year-old who is credited with predicting the 1987 Black Monday stock market crash, said if the economy slows into a double-dip recession and there are serious deflationary pressures, additional government stimulus packages will drive prices up.
“This, in the long run, will be inflationary so I would rather play the short side of the bond market one year out than the long side,” Faber said in a separate interview today on “Bloomberg Surveillance.”
The U.S. 10-year note will rise to 3.35 percent by the end of the year, according to the median forecast of 61 economists by Bloomberg News. The yield fell to 3.04 percent at 10:03 a.m. in New York. It touched 2.85 percent on July 21, the lowest since April 2009.
“We’re going to hit those levels, the question is when,” Rosenberg said about yields approaching 2 percent. “If I didn’t believe it, I wouldn’t have made the bet.”