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David Rosenberg On The Difference Between The Buy And Sell Sides, And What He Is Investing In Right Now

Tyler Durden's picture


While part of Merrill Lynch, David Rosenberg was always an outlier, in that he never sugarcoated reality, and could always be relied upon to expose the dirt in the macro and micro picture, no matter how granular or nuanced, and how much it conflicted with other propaganda research to come from the bailed out broker. Then three years ago he moved to Canadian investment firm Gluskin Sheff, transitioning from the sell side to the buy side, yet for all intents and purposes his daily letters, so very appreciated by many, never ceased, in essence making him a buysider with an asterisk - one who daily shares his latest vision with the broader public, in addition to his personal investment team. In one of his last letters of the year, Rosie presents a detailed breakdown of all the key differences between the sell and buyside, at least from his perspective, and also how, now that he manages other people's money, he is investing in the future. To wit: "In my former role as chief economist at Merrill Lynch, I flew all over the world and saw all the legendary portfolio managers from Paul Tudor Jones to Jeremy Grantham to John Paulson to Bill Gross — at least three or four times a year. Now the only PM's I speak to are our PM's. Not that they "have to" agree with all of my calls, but I am here as their economic concierge 24/7. The same holds true for our clients. In my previous life on the "sell side", it was very rare for me to sit down one-on-one with private clients. Today, that takes up a good part of my day — helping our client base make investment decisions that will build their wealth in a prudent manner over time." As for what he likes (and dislikes) we will leave it up to the reader to find out, but will note that Rosie appears to take issue with being labelled a permabear. And why not: he has been far more right than not since the December 2007 start of the Second Great Depression.

From Gluskin Sheff:

Marrying The Macro And The Micro

It's been nearly three years since I joined Gluskin Sheff + Associates and to this day I still get asked the question about what the big differences are between working at a big bulge bracket bank where I spent most of my career and a boutique wealth management firm.

Well, from the lens of an economist and strategist, the answer in one word is "relevance". I no longer sit on a different floor or in a different building than the critical decision makers. My office is right in the trenches with our portfolio managers and I sit kitty corner to our CIO, Bill Webb. We are in constant contact. Moreover, instead of seeing the CEO once or twice a year at some gala at a speaking event, I am in regular contact with Jeremy Freedman — daily, in fact.

In my former role as chief economist at Merrill Lynch, I flew all over the world and saw all the legendary portfolio managers from Paul Tudor Jones to Jeremy Grantham to John Paulson to Bill Gross — at least three or four times a year. Now the only PM's I speak to are our PM's. Not that they "have to" agree with all of my calls, but I am here as their economic concierge 24/7. The same holds true for our clients. In my previous life on the "sell side", it was very rare for me to sit down one-on-one with private clients. Today, that takes up a good part of my day — helping our client base make investment decisions that will build their wealth in a prudent manner over time.

So in what way are we marrying the top down "macro" view that I provide with the bottom-up "security selection" process among our portfolio managers?

While our Portfolio Managers remain long-term bulls on the resource sector, they are rightfully cautious. After all, we are clearly witnessing global growth slow, which always provides a headwind for commodities. China will do the right thing eventually and re-stimulate its economy, and we all agree that the authorities there have a much better handle on their economy than the market gives them credit for. But the economic trends over the near-term are sufficiently challenging such that the commodity space will be quite sloppy, and in our view, for at least another quarter.

Where we have conviction on the "long side" (remember, we manage our own alternative strategies) right now is in energy, primarily oil-levered equities. Gold is under some real pressure right now, but we still like the long-term picture. I don't see how Europe resolves itself without some form of monetization/printing, which has to be good for precious metals in the end. Elsewhere, we still favour agriculture stocks even though they've pulled back and our investment team favours adding to this sector at more attractive re-entry points.

Within base metals and bulks, our favorites from a structural standpoint are copper, coal and iron ore, but again they will likely underwhelm until the Chinese picture becomes clearer. The bottom line: we are secular bulls, but with year-end window dressing, tax-loss selling and a dearth of catalytic news, we probably won't see the bottom in basic materials until January or February.

In our U.S. equity strategy, our PM's have bought into the view of a slower growth environment and are rightfully running a lower beta (about 0.9) portfolio which emphasizes high return/high ROE businesses. As such, they continue to scour the universe for businesses with unique competitive barriers and which embrace many of our deflationary and frugal/cocooning spending themes. We are somewhat agnostic as to what sectors we find these businesses in, but as it shakes out, we continue to favour Technology as well as Consumer Staples and Healthcare.

Within Technology, we think we are in inning two of nine with regard to enabling mobility, and have embraced the ecosystem leaders which we perceive to have unfair advantages (Apple, Qualcomm, Google, American Tower). Some might argue, but I believe a smartphone is less of a luxury these days than cable television. The cost to the consumer after carrier subsidy is less than $100 and costs as low as $15 per month for a device which can be your phone, camera, messaging device, video camera, book reader, internet browser, video player, and countless other things.

Within the Consumer group, we focus on businesses that take advantage of secular trends or provide good dividend income rather than high-end retailers or restaurants (ex-McDonalds). Our largest weights embrace the trends surrounding the U.S. consumers "saving money" or taking steps to watch their pennies. Our largest two discretionary positions are providers of used/refurbished auto parts, given the average age of vehicles on the road in the U.S. (10.6 years) and the desire to provide inexpensive fixes.

We then have the likes of McDonalds, Family Dollar (the second largest U.S. dollar store chain), Mattel (I would argue toys for kids aren't discretionary; grandparents are living longer, divorces are good for toy buying, and the average Mattel toy is less than $12). Very much in line with my thoughts on the consumer.

Given the regulatory overhang and clouded earnings outlook in the Financial Services Sector we are focused on their credit offerings and remain wary of the equity. Our European exposure through ADRs (American depositary receipt) is comprised of Vodafone (all wireless and owns half of Verizon Wireless and will yield 8% in 2012) and Ryanair (actually do better in recessions as large and high cost airlines in Europe consolidate and lose money).

We have been long Aerospace all year (see my work on this from yesterday's Breakfast with Dave), as airlines need to upgrade planes in the era of $100/bbl oil and competitive fares in order to stay in business. This is a solid 3-5 year growth market and backlogs have never been bigger for the plane makers. This goes to show, yet again, that we can invest in secular growth themes that transcend the Eurozone debt crisis, economic headwinds in the United Sates and growing real estate strains in China.

This holds true, for example, in the Healthcare space, where valuations are attractive and the overall business is non-cyclical. The sector more than discounts the patent cliffs for big Pharma, and will benefit from rising income levels in emerging markets. The average dividend of greater than 3% yield dovetails nicely with our (Safety & Income at a Reasonable Price) S.I.R.P.strategies.

Within our long/short strategies, we are positioned conservatively at the current time. We are long either large cap, blue-chip dividend payers that are growing their dividend or Canadian yield-oriented names that are mid-cap (names that we have owned for many years, whose management we know well and that we believe operate in a very good competitive position).

We are generally short businesses we think are either in secular decline or have a poor capital structure that may force a dividend cut.
Thematically, we are generally short anything reliant on paper, as we believe the digital transition and cultural changes will make these dinosaur businesses obsolete.

We are long power and pipe companies in Canada that pay an attractive dividend yield and we view the underlying assets as very valuable. We are long blue-chip, large cap U.S. dividend payers — McDonald's, Hersheys, Altria are some examples.

We have been short the Canadian consumer/housing through some retailers and mortgage insurers. The longs in this universe are more in the property and casualty firms — that are well positioned from a balance sheet and competitive perspective. On net, we are short the financials.
In conjunction with our resource sector view, we remain long Canadian exploration and production firms that have good organic growth profiles and have an oil bias or a bias of gas-rich or natural gas liquids.

Also consistent with my long held view that this is a multi-year malaise, and identifying where people spent their time for enjoyment in the dirty-thirties, it was at the movie theaters. In our view, this sector has become a cash cow. We're long both Canadian and U.S. theatre companies in our long/short strategies, and it is a theme that is working well.

When Gerry and Ira started the business in the early 1980s, 1-bill yields were in double-digits. Now that is a big "risk-free" hurdle for any fund manager to clear, but interest rates at that level were also foreshadowing a very benevolent macroeconomic landscape ahead. But today we have the inverse. Risk-free rates are close to zero, which is a tail-wind for us, but it is also a signal of how challenging the investment horizon is currently — there are far fewer needles in the haystack. But between my top-down research and the bottom-up by our PM's and analysts, we are finding quite a few.

Perma bear, indeed. It's all about preserving capital first and generating attractive risk-adjusted returns over time.


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Wed, 12/21/2011 - 15:08 | 2001866 Tsar Pointless
Tsar Pointless's picture

China pension fund to invest $1.6 billion in stocks

ECB. Fed. China. All buying stocks.

Exactly how many times since March 2009 have we heard "Just one more rally, then..."?

Wed, 12/21/2011 - 15:26 | 2001905 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

It's fun watching them scramble.  Look how they run, like pigs from a gun, see how they fly.....

No one knows what to do with their fiat?  Not even Rosie.  Short this, buy that, at the end of the day one is still left holding the bag. 

Equity is a ludacris investment.  Either you "diversify" and own everything, or you buy one company.  If you buy the wrong company, you lose your pants.  If you diversify, you mute your return.  This not to mention that the corporations are working directly against the people of the world, to favor the oilgarhs in their quest for world domination as the Kings and Queens they want to always be.

If you buy debt/bonds you have to buy the top of this market, this very artificial market thanks to economists everywhere.  Economics, a scientific study, studying something that is based on one big lie.  The lie is that fiat is money; it is not, it is currency.  Then from there the lies spin out of control by ways of fractional reserve lending, rehypothecation, etc.  The money is spun like the lies they weave, and in the center is one giant spider who is very hungry, and waits patiently for the bug that is oh so close to getting stuck.

The reality is, there is only one way out, and that is by not participating in the system.  One must be prepared to work the land, one must own wealthful investments that are not lent out.  One can make loans, that is fine, but the recourse is exponential, and if a loan stops performing, it is on the owner, not anyone else.

We will soon be dealing with this reality.  Once the Fiat Ponzi's growth decelerates, which it might have today, the spider will catch its meal.  The US peaked at 100% debt/gdp, and since the US was the engine of growth for the last hundred years, the game is over. 

The cause was not just debt issuance in the public and private sector.  It was also a resource peak.  Now that resources cost more money than it is worth to use them, the growth stagnated and has begun falling.  No longer will Americans drive 5 blocks to the store for dinner; they will walk.  No longer will Europeans retire at 55; they will work.

This New World, for all purposes of dates, began today.

Welcome to the New World.

Wed, 12/21/2011 - 15:36 | 2001960 economics1996
economics1996's picture

Hey Hendrix you need to separate out the Keynesian pond scum from the Austrian economist.

Wed, 12/21/2011 - 15:37 | 2001962 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

I'll work on it

Wed, 12/21/2011 - 18:53 | 2002718 Larry Dallas
Larry Dallas's picture

Thankfully our young 20-somethings are still smoking the Hopium and buying stocks. The ponzi will be kept alive a little while longer... albeit i'm sure their demand for equities is not enough to counter the supply that baby boomers will be providing when they sell this stuff off in the years to come.

Ameriprise must be givng out credit cards on college campuses now. Or sponsoring spring break weekends now.

Wed, 12/21/2011 - 15:26 | 2001921 walküre
walküre's picture

China and their central planning committee stopped building empty cities and are now buying "local" stocks to put a floor under their market. Clear signs of a last ditch attempt to try and keep CONTROL. That's what this is all about, control. It's a for sure "sell" signal to every foreign investor in China's stock market.


Exactly how many times since March 2009 have we heard "Just one more rally, then..."?


But few stocks have actually improved at all during 2011. That's one year of a pretty much flatlined market unless you were able to pick the winners and avoid the losers.

How is 2012 going to be different in the face of a pronounced depression in the US and a recession (or worse) in Europe? Sure, the CBs are putting a floor under the market (until they can't) but there won't be any gain. Look at Japan.

Might as well take the money and drink and party until the end of days. Investing is going to be a buzz kill.

Wed, 12/21/2011 - 15:30 | 2001936 Tsar Pointless
Tsar Pointless's picture

Invest? Oh, I don't invest.

In these markets? I don't see any markets - just casinos. And I am not a ramblin' gamblin' man.

I have no 401(k), nothing in equities, bonds, or paper of any fashion. Just cold hard cash is all I deal in.

I've never made a single trade in my life. I merely come to ZH for the comaraderie and free cookies.

Wed, 12/21/2011 - 16:00 | 2002030 walküre
walküre's picture

Cash positive is good way to live. When all is settled and done, your cash stays with you and your family. Nobody can tax you or your estate on that.

Wed, 12/21/2011 - 16:27 | 2002136 Potemkin Villag...
Potemkin Village Idiot's picture

I merely come to ZH for the comaraderie and free cookies.

Stay away from the shrimp bisque...

Wed, 12/21/2011 - 15:41 | 2001974 economics1996
economics1996's picture

A price floor can be set above the free-market equilibrium price. In the first graph at right, the dashed green line represents a price floor set below the free-market price. In this case, the floor has no practical effect. The government has mandated a minimum price, but the market already bares a higher price.

Wed, 12/21/2011 - 16:10 | 2002069 walküre
walküre's picture

Probably true for the gold market. But as far as the Chinese stock market goes, I guarantee you that market would have the price much much lower if government via CB hadn't stepped in at some point this year. The article also said the Chinese already put 10 billion Yuan into the stock market since August, and now another 10 billion Yuan. If all was rosy and investors lining up to buy stocks the government wouldn't have to engage in this action.

Question is, can they stop the outflows or at least mitigate the downtrend?

Wed, 12/21/2011 - 17:01 | 2002242 Stax Edwards
Stax Edwards's picture

China and their central planning committee stopped building empty cities and are now buying "local" stocks to put a floor under their market. Clear signs of a last ditch attempt to try and keep CONTROL. That's what this is all about, control. It's a for sure "sell" signal to every foreign investor in China's stock market.

Yep.  Been singin this tune for some time now.

Wed, 12/21/2011 - 15:10 | 2001867 bank guy in Brussels
bank guy in Brussels's picture

David Rosenberg writes above:

« In my former role as chief economist at Merrill Lynch, I flew all over the world ... »

Wonder if he ran into Simon Black, the Sovereign Man?

Wed, 12/21/2011 - 15:16 | 2001888 GeneMarchbanks
GeneMarchbanks's picture

'Wonder if he ran into Simon Black, the Sovereign Man?'

Yep, at a bus stop in Bangkok where Simon's dishes out 50 baht HJs...

Wed, 12/21/2011 - 15:19 | 2001899 kralizec
kralizec's picture

That right there is funny!

Wed, 12/21/2011 - 15:22 | 2001907 kekekekekekeke
kekekekekekeke's picture

OT but has Zero Hedge addressed the Trillion-Dollar Lawsuit/David Wilcock article? Thoughts? what does it mean for gold?

Wed, 12/21/2011 - 15:23 | 2001908 clones2
clones2's picture

Strangest action in the market today.

Dow, Nas, Spy all down

TLT (bonds) - down

The dollar AND the Euro - down

Gold and Silver - down

Even Volatility is down...

Where the hell is the money going???? 

Wed, 12/21/2011 - 15:27 | 2001923 Tsar Pointless
Tsar Pointless's picture

You might want to start your search by checking the pockets of bank CEOs and legislators.

Just a suggestion.

Wed, 12/21/2011 - 15:31 | 2001940 s2man
s2man's picture

I put a couple hundred in my gun safe, today. I'm sorry.

Wed, 12/21/2011 - 15:33 | 2001947 kralizec
kralizec's picture

Cashing out for Christmas, one last binge to close out the year in good form before the floor caves in?

Wed, 12/21/2011 - 15:50 | 2002002 I am a Man I am...
I am a Man I am Forty's picture

oil companies are up

Wed, 12/21/2011 - 16:15 | 2002095 walküre
walküre's picture


miners are down.

LTOR did sweet fuck all for gold / silver and miners.

gold is the leading indicator for next year .. deflation

Thu, 12/22/2011 - 20:02 | 2005845 SoK
SoK's picture

It's not money disappearing. This is a credit contraction. So, where do broken promises go?...

Wed, 12/21/2011 - 15:23 | 2001910 twotraps
twotraps's picture

I'm sure he's a lovely guy but you don't pay them to sit in cash.   Like colleget tuition, its the same or higher every year regardless of the larger are wealth management fees, great gig.  Now that its in vogue to be cautious, everyone can look like they are looking out for their customers!!

Wed, 12/21/2011 - 15:24 | 2001915 s2man
s2man's picture

Short paper.  Got it.

I'll assume that includes FRNs and other forms of IOUs, equities, ETFs.  What did I miss?

Wed, 12/21/2011 - 15:35 | 2001957 High Plains Drifter
High Plains Drifter's picture

its strange how many talking heads on cnbc continue to this day talking about whether or not we are going into recession in 2012..........kind of

Wed, 12/21/2011 - 15:44 | 2001987 economics1996
economics1996's picture

The useful idiots.

Wed, 12/21/2011 - 16:07 | 2002057 Amused2Death
Amused2Death's picture

Not necessarily, you got the Bernank at the helm and there's no limit to how high he can hover so no, it's not academic...

Wed, 12/21/2011 - 15:42 | 2001980 Eagle1
Eagle1's picture

I worked for Merrill back in the late 60's and early 70's and have followed them since. They have a rich history of getting rid of anyone that was too open about not being bullish on america as they used to say.

Wed, 12/21/2011 - 15:48 | 2002001 brew
brew's picture

wonder how he's liking the tech sector today (orcl)...

Wed, 12/21/2011 - 16:05 | 2002051 apu123
apu123's picture

Say what you will about the long term, I will not be short anything going into tomorrow's fake unemployment numbers.  It is stunning there was not more fall out from the false years of housing data this morning.  I guess the ECB dumping all that free money into the insolvent banks is cause for celebration.  I am beginning to feel like one of those guys that wanders around with a sign saying "the end of the world is nigh".  I was trying to tell a family member about how some of the money printing and false statistics may cause upheaval in the future and I got a "fuck you you are just a doomer, if your so smart how come you are not rich and on TV"

Wed, 12/21/2011 - 16:16 | 2002100 walküre
walküre's picture

then go short the day after or the day after that.

the trend is your friend since June 2011....

Wed, 12/21/2011 - 16:06 | 2002055 Lotus
Lotus's picture

for those of you stuck in TVIX get out now!     the boys at Credit Suisse have got you mesmerized       just saying

Wed, 12/21/2011 - 16:13 | 2002080 Amused2Death
Amused2Death's picture

So he's basically long a bunch of equities, short a few, and newtral on PM's, did I miss anything?

Wed, 12/21/2011 - 16:50 | 2002205 Lester
Lester's picture

Anyone who "invests" money in anything other than physical or real property is an idiot...

The term investment implies by definition a commitment or determined holding. Average time of an "investment" in the market today is measured in nano-seconds. Anyone committing their funds on a more than couple days time-horizon is looking to get fleeced.

Wed, 12/21/2011 - 16:56 | 2002221 Stax Edwards
Stax Edwards's picture

Enjoyed this post, Good Stuff

Wed, 12/21/2011 - 22:46 | 2003237 Artful Dodger
Artful Dodger's picture

Even Rosie is making things sound "not that bad". Where'd the worry go - VIX down day after day, even if SPX is down 10 points. Even I've been looking for a "normalizing" market to go after illiquid bargain dividends into year end. I don't usually think like that...

Either the trance generators are working overtime or this market is simply not going to do worse than muddle around indefinitely. Or both.


Contrary Indicator

Wed, 12/21/2011 - 22:56 | 2003265 Ted K
Ted K's picture

I hope David Rosenberg reads this, it would do my heart good. Because there are very very few institutional guys, who are honest, act the same as they talk, and don't sell the individual investors down the river.  David Rosenberg is that guy.  There are lots of negative stereotypes about Jews.  Rosenberg is good with money, but he doesn't steal it or con it.  He earns it.



Thu, 12/22/2011 - 15:50 | 2005036 kelpie-capital
kelpie-capital's picture

I think Rosie is absolutely great. His analysis is always insightful and honest, he has never claimed to be a trader or a market timer.

Predictions for the Year....


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