David Rosenberg: The Recession Is A Virtual Certainty And Here Is How To Trade It

Tyler Durden's picture

David Rosenberg released an emergency note today, in addition to his traditional morning piece, in which the sole topic is the upcoming recession, which he says is now a "virtual certainty". He also says what Zero Hedge has been saying for month: that 2011 is an identical replica of 2010, but with the provision of modestly higher inflation, which needs decline before QE3 is launched. Sure enough, a major market tumble will fix all that in a few days, and ironically we can't help but continue to wonder whether the Fed is not actively doing all in its power to actually crash the market to about 20% lower which will send practically flatten the treasury curve and give Bernanke full reign to do as he sees fit. However, as long as the BTFD and mean reversion algos kick in every time the market makes a 2% correction, such efforts are doomed, which in turn makes all such dip buying futile. We give the market a few more weeks before it comprehends this. In the meantime, with each passing day in which "nothing happens", the recession within a depression looms closer, and soon it will be inevitable and not all the money printed by Bernanke will do much if anything (except to terminally wound the dollar). In the meantime, for those who wish to prepare for the double dip onset, here is Rosie's checklist of what to do, and what not.

Recession Protection


Moving increasingly to immunize portfolios from the rising prospect of a recession scenario while providing returns that cash, deposits and T-bills just can't rival what we are doing at the investment committee and asset mix level of our firm.


Let me begin by saying I don't think this will be classified as a "double dip" per se since so much time has elapsed since the last downturn. Be that as it may, it is evident that we will be going into another recession — I think at this point it's only a question of whether it has already begun — with the levels of output, employment and income all lower now than they were prior to the last contraction phase.


Plain-vanilla, garden-variety business expansions and contractions that are influenced by the manufacturing inventory cycle tend to have recessions separated between five and 10 years apart. That was certainly the experience that economists came to understand and appreciate in the post-WWII era. But in balance sheet cycles, which involve deleveraging, rising savings rates and asset deflation, recoveries are fragile and susceptible to the smallest of shocks and typically, recessions occur every two to three years. This puts a recession by 2012 squarely in the spotlight.


I have already pegged a U.S. recession as a virtual certainty, and respected economists like Martin Feldstein in recent days stated the odds were 50-50 and Larry Summers is at 1-in-3. I am fairly certain that Paul Krugman is close to where I am on this file. All that said, recession risks are rising and until we receive another positive policy shock from the Fed, these risks will remain acute for some time yet. We are replaying the summer of 2010 but only when the white knights of radical monetary and fiscal stimulus resurfaced did the "double dip" chatter subside and give way towards renewed growth and risk appetite — at least for a few months.


You can still make money for investors without taking undue risk ... and without having to shift into the ultra-safe world of zero percent-yielding cash or one percent GIC rates either.


Hedge funds that really hedge the risk or relative-value strategies that can go short low-quality and high-cyclical equities while going long a basket of high- quality and low-cyclical equities will be a money-maker in this environment. Those that have the capacity to short economically-sensitive stocks that trade at cycle-high P/E multiples may have an advantage in such a weakening macro and market environment.


A focus on hybrids or income-equity portfolios that have low correlations with the direction of the equity market and generate a yield far superior than what you can garner in the Treasury market makes perfect sense.

And if there is anything out there that is remotely close to "recession proof" it is corporate balance sheets and so an emphasis on credit is going to be critical — the idea is to be selective and identify those entities that have a single-A balance sheet but pay out a BBB yield.
We are believers that gold and gold mining stocks will prove to be profitable investments as the economic downturn inevitably prompts more money printing, not just out of the Fed, but other major central banks as well.


Commodities in general, energy and raw food in particular, should be a core position, as they are behaving less cyclically and more as a secular growth theme linked to the rapidly rising incomes in the emerging market economies.

The economy and risk assets typically hit a speed bump in a recession. That much is true, but investment ideas and opportunities within the market can still flourish even in a bear phase or a correction — cash should not have to be an option.


The key is to be positioned appropriately for the part of the business cycle we are on the cusp of entering. In a nutshell, what that means is carefully- constructed investment strategies and portfolios that preserve capital, minimize cyclical exposures, enhance yield and thereby provide for significant risk- adjusted returns—even in a recession. In light of these heightened volatile times, we also realize that this is not necessarily a buy and hold market, and the ability to move into equity markets and take advantage of weakness should also be a part of the strategy

Source: Gluskin Sheff

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Yen Cross's picture

  I'm loving this Quasi Yen selling right now...  Good thing I'm smart enough not to trade Yen or chf right now!   Think I'll add some more Aud on this high 1.06's area...

Taku's picture

Side note: Japan bailing out nuclear co. Using taxpayers to pay victim compensation.


BTW: I may have missed tape here, but radiation going wild in Japan. Today.


Anyone know how long until this wind blows here, or when the 3-eyed fish arrive?

GeorgeHayduke's picture

Looks like Japan is going to follow the US model of helping to keep those corporate profits safe and privatized while socializing the externalized costs of the mess. Ah yes grasshopper, Japan has been a good 51st state so far.

mason5566's picture

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NaN's picture

Time for a sing-a-long:   Spam, Spam, Spam, Spam, Spam, Spam, Spam, Spam, Wonderful Spam!


(Acct. mason5566 should be disabled.)


HardwoodAg's picture

Shove your fucking wimpshields up your shit stained ass

Freddie's picture

If Tyler was not busy counting his gold bars or banging de hoes - he might get rid of this shit spam.  Buy a good bike - buy a Ducati.

Marge N Call's picture

Damn right Freddie. Do you have one? I've got a few - my favorite one to ride is my 2004 ST4s. Man I love that bike. And it's not like the Jap bikes are much cheaper to own these days.

DavidC's picture

I can't explain it, but I'm getting an uncontrollable desire to want to buy some motor cycle fairings. But I don't own a motor cycle...


BigJim's picture

Damn those silver-tongued marketing devils! Why can't they fill us with an uncontrollable urge to eat (say) vegetables?

Hobbleknee's picture

There are videos on youtube of a guy in Canada measuring dangerous levels, evacuation levels, from the rain on his windshield.

Crisismode's picture

Will you PLEASE wake up and smell the Roses?!?!?




Get it??


There is a DEPRESSION that has been going on for THREE YEARS NOW!!


ROSIE, wake up and smell the roses. There will be no NEW recession because the OLD ONE is still carrying on as the same DEPRESSION we have been in for 36 months now.



caerus's picture

complete with a 1 1/2 year bear bounce

La Guillotine's picture

Yeah and the fact that he was bearish a year ago and bullish 6months ago and now is bearish seems to have been forgotten.

Ponzi Unit's picture


same depression, different day...

rocker's picture

Surprise. Boards not full. David Rosenberg at least told us to buy gold.

It is not his fault that the FED would pimp the market past everybody's belief.

adeptus's picture

And what of the moral implications of your investment in agricultural stocks partaking in the rising of food prices on a global scale? Is it still a "good" investment then? Be the change you want to see in the world. Morality before profits.

rocker's picture

I think it is a matter of reality. The elite will pimp the price of whatever the majority of people need in the name of GREED.

Just like JPMorgan buying tankers of Oil and sitting offshore until they get the price they want for it.

Your tax dollars working hard for you.  

Uncle Remus's picture

JPMorgan buying tankers of Oil and sitting offshore until they get the price they want for it.


Sink a few of those and that'll dampen the enthusiasm for that racket.

CrashisOptimistic's picture

It would also dampen enthusiasm for fishing in that area.

Doña K's picture

They are actually insured by AIG. So that the taxpayers will foot the bill.

tip e. canoe's picture

something tells me you're not joking

TaxSlave's picture

Plus, the price of oil WOULD go up after such an incident.

Pay Day Today's picture

So it might be worthwhile for them to sink one of their own smaller tankers? Madness.

SlipStitchPass's picture

Don't sink the fucking thing...I'm thinking you pirate it and use it as a negative PR stunt against the big banks. Hang a few banners from it and tell Jamie and Blythe to Piss off.

Yen Cross's picture

  Gotta love that Brent / WTi spread   sarc on<  ):

swmnguy's picture

Actually it might make that racket insanely profitable, don't you think?  In fact if it does go down that way, I'd like to know JPM's alibi...

caerus's picture

moralistic musings aside...i suspect that the prevalence and popularity of cooking and celebrity chef shows is indicative of a bubble in food...kind of like the house flipping shows before the real estate bubble

snowball777's picture

I miss those 'flipping' shows...nothing quite like watching a complete moron with a fervent belief that there's a bigger moron then them out there somewhere and laughing as they drown in carry costs for lack of dumber.

Yen Cross's picture

  Man (vs) COLOSSAL SQUID, comes to mind...   It's all contango these days?

caerus's picture

right...i knew dentists and doctors and lawyers who were "flipping houses" on the side...one dentist told a friend of mine (after he lost his shirt flipping houses when it all went down) that he had lost more money than she would ever make...(i think he was bragging)

snowball777's picture

Isn't that like bragging about the pliability of your johnson?  Guess he wasn't smart enough to burn em for the insurance.

caerus's picture

lol...yes...he is a douche

seek's picture

There is a moral out to this. The TPTB are going to profit regardless. If moral people invest, they can apply the profits to weakening TPTB and helping support those that are harmed (donate to a food bank, for example.)

A Nanny Moose's picture

Please refer comments regarding speculation to Ben Dover, the man with the printing presses.

TaxSlave's picture

And what of the moral implications of your investment in agricultural stocks...

That's nothing compared to government bonds.  Invest in your own slavery!

Reese Bobby's picture

Self-appointed moral specialists like you really bother me.  There is too much money chasing too little food.  Get it?  What prices investors choose to pay for "agricultural stocks" is irrelevant.

Pay Day Today's picture

You don't need to be a moral 'specialist' to know that pricing millions of people out of food is a bad move.

BigJim's picture

Buying the commodity itself may do that. But buying stocks in companies producing food does that how, exactly?

Captain Planet's picture

It seems you don't need a moral specialist to point out you are neither....

Go back to Wall St.

sun tzu's picture

Higher ag prices mean farmers will grow more crops to take advantage of higher prices. That should produce a bumper crop. Lower prices drive farmers out of business and we will have a shortage of food. 

Pay Day Today's picture

You've forgotten to consider that higher food commodity prices which millions cannot afford causes an effective shortage of food for poorer people any way.

BigJim's picture

It depends on what is causing the higher prices. If it's taxpayer-subsidised banks cornering the market by buying 80% of corn production, then yes, it's an immoral act.

But if prices rise because there's been a bad harvest, then that's just tough shit.

Id fight Gandhi's picture

He's always been wrong in the timing and response for this market and it manipulation. Won't listen to anything more from him.

RoRoTrader's picture


Bottom line: what is Rosie's ROR over past calls, at least starting from JH, 2010?

CrashisOptimistic's picture

Wrong question.

The correct question is absent government intervention, which is unpredictable on a consistent basis, what have his economic calls looked like.

RoRoTrader's picture

In reality there dickhead one of Rosie's calls was spot on and that was over the US using the dollar as a policy lever.......remember that one? If you knew how to trade the call, regardless of the policy being on whatever side of morality notwithstanding since it is all about being on the right side of price in the end, right.

And just for the record, what is it that are you buying or selling at this point in time, at what price, and for how long?

CrashisOptimistic's picture

Junk bonds.  About 8% yield, up 5% ytd.

Suncor when the market bottoms.

Chip's picture

Beauty in simplicity, 10/10

Doubles your money in 10 yrs, too.