David Rosenberg's 10 Themes For 2011

Tyler Durden's picture

From Gluskin Sheff's David Rosenberg


  1. Consensus views of 1,350 on the S&P 500 and 4% real GDP growth are far too high. Not one strategist polled by Bloomberg is bearish on equities. So we have a complacency problem on our hands, the exact opposite of what we experienced at the March 2009 and the July 2010 lows. For that reason, the outlook for at least the first half of 2011 is less than positive.

    Moreover, equities are at the high end of the range and are priced for good news on earnings and economic growth. Valuations are not at extremes (however, according to the Shiller normalized P/E ratio the market is still on the expensive side) but sentiment is. Negative divergences are increasingly apparent and momentum is actually subsiding. We see better buying opportunities ahead but continue to favour companies that are “special situations” — consistent dividend growth, undervalued, strong balance sheets, and non-cyclical in the sense that they have low correlations with the direction of North American growth. Negative divergences are increasingly apparent and momentum is actually subsiding.

  2. In my view, real GDP growth in the U.S.A. is set to slow from around 3% in 2010 to 2% in 2011, or possibly even lower. This is not a double-dip but it is a slower growth profile. We went to 3% in 2010 from -2.6% in 2009 so the second derivative was positive. But for the coming year, the second derivative is likely going to decline. This augurs for a non-cyclical exposure; more defensive and still yield-oriented. As the Bank of Canada strongly suggested, global growth is going to slow and hence a sense of caution over global multinational cyclicals is warranted.
  3. The fiscal and sovereign credit problems in Europe are not going away. Neither is the instability in the U.S. state and local government sector. Policy tightening in China is also a source of uncertainty. Volatility is likely to intensify with this outlook.
  4. The U.S. dollar is likely to strengthen, particularly versus the yen (the Bank of Japan and Ministry of Finance want the overvalued yen to weaken) and the euro (they need it since Eurozone is tightening fiscal policy more dramatically).
  5. Emerging markets will struggle as central banks move more forcefully to curb accelerating inflationary pressure. The Chinese stock market may have already signalled that a major top in the region has been achieved.
  6. The U.S. fiscal borrowing need for 2011 is no higher than it was for 2010. As such, fiscal concerns in terms of what it means for lower long-term rates are misguided. The yield curve is too steep and will flatten, led by lower bond yields. The recent increase in long-term rates is very similar to what we saw happen in December 2009 and helped ensure that bonds would enjoy a year of positive returns in 2010.
  7. The Canadian dollar is overvalued by at least five cents and is likely to succumb to a softer profile for commodity prices. Basic materials appear over-owned in the short-term and bullish sentiment is at a high. The policy tightening effect out of emerging Asia is an obstacle, especially at current price levels. There is likely an election in Canada and the U.S.A. will not be beset by political uncertainty until 2012. Hence some caution as it pertains to the outlook for the loonie (though I would look to get more positive at 93 cents).
  8. Deflation remains the primary intermediate risk for the U.S., notwithstanding the prospect of a near-term follow-through from the recent surge in many commodity prices. Money velocity remains dormant despite the Fed’s reflation efforts. There remains far too much excess capacity in the labour market. This requires an ongoing focus on SIRP (safety and income at a reasonable price) strategies for investors.
  9. Corporate bonds are no longer inexpensive but within this space, financials and utilities screen best for value in terms of sectors, the 5-7 year part of the curve in terms of duration, and the BBB-BB area in terms of ratings.
  10. One of the most pronounced macro risks is another leg down in U.S. home prices, which actually seems to be underway but is currently receiving very little attention.

Our preferred “buy list” are out-of-favour groups that are not priced for accelerating growth: Utilities, pipelines, oil income, pharmaceuticals (dividend focus as well as being out of favour), food products, and grocery stores.

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Larry Darrell's picture

You forgot the skittles........or is that covered by the rainbow?

 "real GDP growth in the U.S.A."..........when was the last time we had REAL growth, and I'm not talking about monetary or debt driven.

Thomas's picture

"You forgot the Skittles". Very funny.

SheepDog-One's picture

I guess it was just assumed Harry, Robo, and the Wall St whores unicorns shit Skittles.

Andy_Jackson_Jihad's picture

I thought Obama shit them.  Right after the unicorns but before the puppy dogs.  In 2008 that college kid swore he did!  He said its just hard to see with the unicorns running around.

Biggus Dickus Jr.'s picture

I don't understand why everyone is so down on Harry and Robo.  The best way to avoid the errors of groupthink is to welcome diversity of opinion.  Maybe wall street whore are very naughty people, but that won't keep me from trying to find the best total return.  I'll run with the whores when necessary.  Why would any objective investor do otherwise?

Raymond K Hessel's picture

Real GDP growth is the sum of the inflation rate and the nominal GDP rate.... has this website become a shithole for ass-sniffing Marxist turdmunchers? 

haskelslocal's picture

Prefered buy list... Grocery stores. First up? A&P at a bargain...

Clayton Bigsby's picture

lol - that was my first thought as well...

littlebuddy's picture

now's a good time to recant unseen 2010 predictions.

Henry Chinaski's picture

now's a good time to recant unseen 2010 predictions.

That's what I was thinking.

And these 2011 predictions aren't all that bad.  Now I am second guessing my plan to keep hoarding food, firearms and precious metals.

toathis's picture

yeah, nothing is coming.

I love the Bernanke hate, very misguided.

HE WAS CORRECT! He saved our behinds from another Depression and War

CNBC was right! No Double-Dip, no nothing!

Gold is a bubble. The Recession is over. The dollar isn't going anywhere.

What a mess_man's picture

toathis ... Dude, Bernanke is never correct.  Never.  Every economic prognostication the man has ever made has turned out to be as wrong as his thesis.  How can you say he saved our behinds from another Depression and war?  This history has yet to be written.  Also, many would argue that we are and have been in a depression for the better part of 2 years now.  Of course you can look at the bogus figures the gubbermint puts out and claim "recovery!", or you can look at that "growth" which has come about as a result of Ben's massive monetary injections and take that away from real organic growth (i.e. the facts) and say 'yep, looks like a depression'.

Al Gorerhythm's picture

and he cured the world of all diseases and he increased the purchasing power of our money and he created 42 million new jobs and he printed the nation out of debt and he increased the value of stocks to record highs and he created gold paved highways and candy rock mountains and got us all singing and dancing in the streets to the tunes of "Sugar Sugar", and Tiptoe Through The Tulips.

I don't see a bubble in gold yet. When Johnny Bravo is standing in the Gold Window line at the local coin store, that's when it will be a bubble.

When you are standing in line to get gold, I'll know it's long past worrying about my sell decision.

Al Gorerhythm's picture

One by one, heads are turning. If this doesn't turn yours, then you are a troll. If this does not set you off on a path to truth, then you are a troll. If this does not generate a volcano of outrage, then you are not paying attention and are therefore a troll.


Bolweevil's picture

That link almost f&$ked up my Christmas.

blindfaith's picture

great, wonderful, fine...now what the hell is anyone going to do about any of it?  They are untouchable and have bought everyone needed to be sure they susceed.  By the time, anyone is in a position to stop it, the valts will be empty and AMERICANS will have a debt that can not be paid off...ever.

As my dentist said to me this week, how can we really stop it?

It is 1934, and Mr Rosenberg has his head in the clouds.

the rookie cynic's picture

I'd be happy to trade you my JPM and GS shares for any .308 shells, Kruggerands, or Spam you want to part with.

tahoebumsmith's picture

Good point as we have seen many unseen 2010 predictions. However the reason for that is nobody in their right mind would have predicted the FED and the ECB would go another 8 TRILLION in debt to prove us wrong. That is really what it boils down to, nobody can predict anything anymore because the cover-up will continue as long as the Elites can keep sucking us dry and the government will allow the FED to continue printing. Every action has consequences, are you ready to face ours once the printing presses are turned off? Just remember every unseen prediction has been stick saved by a bailout...EVERYONE OF THEM! So eventually the curtain will be pulled back and the lip quivering wizard will be exposed for what he really is, nothing more then an ink covered coward that robbed America blind.

DoChenRollingBearing's picture

+ 1 tahoe

NONE of our fundamental problems have been solved.  NO ONE (of significance)  has gone to jail through this financial disaster.


@ Henry above, don´t feel bad buying gold.  Feel tranquil instead.  You will sleep well tonight.

hidingfromhelis's picture

+1 Suburban...brought to you by Gov't Motors!

blindfaith's picture

I have written words along this line on Zh before.

Until, for some situation yet to happen, martial law is declared, nothing will change or be stopped.  How can anything be changed when the government is as corrupt as the banks and brokers, fund managers, corporate leaders, the media?  The corruption is so entrenched in America that most Americans can't see it because it has become a part of daily life...it is expected.  TV shows, video games, movies, on the internet..it is how we are being brainwashed to be.  You even see hero worship and the desire to walk in those shoes.


Until such time as the military has had a snoot full and feels jeopardize that its ability to pay its troops or purchase needed supplies is threatened,  until such time that the military feels that the civilian government and enterprise has 'weapons of mass destruction'...until, that is when all this mess will end.  NO other power has the ability to change anything but the military, so don't kid yourself.  But, then ....the question becomes will George Washington or Dwight D Eisenhower then emerge?

puckles's picture

A military takeover is extremely unlikely.  Martial law, however, at some point, is very likely; occasioned by yet another Reichstag fire event, and commanded by the duly elected powers.

Midas's picture

My buddy Harry says you should take a look at apple.  (Don't worry about the price)

Robslob's picture

Tough call on Apple...5 shares at $320 or buy 2 iPads?

CPL's picture

Apples have a great return.  Two trees to cross pollinate for around 40 bucks a piece equals $1000 in apples.


Oh wait, you're talking about the shit hole of a company called apple...pardon me

malusDiaz's picture

I planted an orchard in the back yard, average cost was below 15$ a tree, 25+

HarryWanger's picture

AAPL is priced very fairly here and is relatively cheap. Watch next earnings report, which will be stellar, and you'll see over 350 in a heartbeat.

SheepDog-One's picture

Harry Im supposed to pack up and move to the Twin Cities based upon THIS info you sent about your many job openings (8-12)?


Hello, We will be hiring at our Twin Cities facility located in Minneapolis at the end of Q1 2011. Right now we anticipate 8-12 new full time positions. If you are serious, I can give you a more detailed description of the jobs available. When I refer to adding "dozens of retail outlets", they are distributors who own their outlets. We sell to them. We've added retailers in Las Vegas, Seattle, Chicago and New York this Fall in addition to the current retailers. That impacts distribution and manufacturing on my end, hence the move to hire in Q1/Q2. HW

reading's picture

For every hiring, there are a few more firings...

T.J. Maxx parent to cut 4,400 jobs 
Source: money.cnn.com 

TJX Companies said on Friday that it is eliminating 4,400 jobs "to improve the overall profitability of the company."

tahoebumsmith's picture

Alright Harry I'll let you in on a good stock tip..( SHW) With talks of QE3 happening just weeks after the introduction of QE2, spackle and paint sales should hit an all time high.


DoctoRx's picture

Agree w HW!  I have been saying on this site since the summer that AAPL is a classic GARP stock.  Note David Einhorn big into AAPL now.

And I've begun to think Rosie sounds almost insane.  Oh, no big deal, deficit for 2011 just as disgusting as for 2010- and unsaid is that both will be monetized -- now why didn't the Weimar Republic work out well in its money-printing orgy?  Buy bonds because contrary to hopes/expectations, the USG is using more and more Grecian Formula?  WTF?

Quixotic_Not's picture

Penny stocks from heaven FTW?

sheep92's picture

It is telling that even though he see not a single equity analyst bearish he too ends his commentary with his 'preferred buy list'.

So to whom is he going to sell this buy list ?


CPL's picture

Good calls, wild cards not-withstanding.

Cancuck buck should, and I say "should" be around 68 cents on the USD, the problem is overpricing basics food stuffs and energy.

Right now our primary consumer of electricity is taking an ass kicking on cost to the tune of nearly 80% of the energy sold over the wire byt draconian energy contracts tot he south of the border.  Yes I understand it's not in Canuck interests, but Canada sells a lot of electricity over the border and there are a lot of cousins in a shitty place because they can't pay their heating bills...however

The food stuffs is obvious.  Costs in energy like ripples in a pond make it troublesome to find where the center of the cost is incurring because the pond ripple has back splashed from the shore and back into the rest of the pond.  With zero possibility of it calming down, expect food prices to double the same time by next year.

While the US produces a lot of food, it is heavily dependent on imported food.  In terms of time the US can feed itself, if it behaved itself and didn't sell food to anyone, for around six months out of a year.  Places like england might make it for three weeks.

There is a heavy dependence on places like Australia, Russia, Canada, Brazil and Argentina to provide the shortfalls in the production of food for the western world.

MrSteve's picture

The USDA report on imported food trends, 1998-2007 shows the ballpark volume of imported food about doubling in ten years.


Your expectations of food prices doubling in a year is some kind of bad typo or a crazy prediction. Do you expect people will start buying half-gallons and half-quarts of milk and 1/8 pounder hamburgers for the same price as today's put-ups?

GoinFawr's picture

"Cancuck buck should, and I say "should" be around 68 cents on the USD, the problem is overpricing basics food stuffs and energy."

Yah ok. That four bit and change assessment is based on what? The fact that the 1967 Canadian quarter is only 80% silver compared to the 90% of the American quarter minted the same year? I've got news for ya bud: it ain't 1967, these days the loonie is just junk metal, and the USD nothing more than linen/paper/mylar/whatever with contradictory mythical symbols printed on it.

I mean, that ratio sure isn't  based on fiscal prudence by any metric I use to measure. But maybe I am completely missing something, so feel free to enlighten me.



Questionmark's picture

What is this guy smoking? We're not even hitting 3% in nominal terms, much less real.

SheepDog-One's picture

Remove dollar printing at -0-% and monetizing, GDP is a big negative print.

DisparityFlux's picture

What about commercial real estate loan defaults in 2011?  How does slow growth and far to much excess labor capacity mitigate this?

Rogerwilco's picture

Yeah, CRE has been swept under the rug. They hold their noses and roll the loans over. Tomorrow never comes in the land of milk and honey.

TheProphet's picture

They're not even rolling the loans over. They're just pretending they don't exist so they don't have to foreclose.

If they rolled them over they might have to acknowledge their decrease in value and mark them to market. And you know for sure that's not happening.

"If I close my eyes, you cant see me" is a great strategy... if you're my cat. Otherwise, it's a path to destruction. Right now, it's a waiting game.

TheProphet's picture

They're not even rolling the loans over. They're just pretending they don't exist so they don't have to foreclose.

If they rolled them over they might have to acknowledge their decrease in value and mark them to market. And you know for sure that's not happening.

"If I close my eyes, you cant see me" is a great strategy... if you're my cat. Otherwise, it's a path to destruction. Right now, it's a waiting game.

toathis's picture

there is no "Excess labor capacity", head to China.

The fact of the matter is, people don't like to work. There is no reason to work when the government prints money and hands it out.


This is a shout-out to all the doomers that were dead stinking wrong.

All that flag wavings and shouting from the front lawn at the WH, did the collapse come... nope!

Tim Geither= best treasury security in history. SAVED US! Got that yet, folks?

___ bless Mr. Geithner. Let us hope he recovers as fast as our economy has under his excellent leadership! (no homo)

Rogerwilco's picture

Were you a big fan of Webvan and Pets.com? Unsustainable is unsustainable, the money (or access to it) eventually runs out.

CPL's picture

I think he was speaking in terms of irony and sarcasim under a rant.

gov.com, webvan.com and pet.com.  Actually worked on a contract for them all, they weren't the worst business shit holes thought dot.com can name around twenty that were just simply awful ideas.

AccreditedEYE's picture

Roger, this dude's a troll. (or just insanely sarcastic, at which point his posts become pretty hilarious) Per akak, don't feed the trolls. (I still feel dirty for feeding Harry earlier...)

UninterestedObserver's picture

You're just a douchebag - I hope you die.

CPL's picture

the wild card of over population and excess population is part of the model, it will just be summarily ignored as usual.

TheGoodDoctor's picture

Actually enriching the third world will naturally curb excess population growth. That is the near term end game. It happened to Europe. It happened to the US. And probably Japan too.