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David Rosenberg: The Recession Is A Virtual Certainty And Here Is How To Trade It
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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"... 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."
How was it not a recession between these periods?
Good thing the "recession is a virtual certainty" cause the real fucking Depression don't need no help!
Some call it a double dip. Hardly! We are still in the 2008 recession, government and Federal reserve oceans of cash spread around to local governments and banks have masked the recession. Now that QE is closed for business and stimulus is running dry, the economy is returning to the fundamental recession. We could even call it a depression when the austerity budget becomes hard reality.
Unemployment, Food stamps, Medicaid, this is all that keeps millions going.
As for the elderly, Social Security and Medicare is all that keeps tens of millions going. Austerity applied to these programs and millions are instantly destitute.
Like I said, regardless of the rights or wrongs of these government spending programs, when they apply strict austerity to them then the depression is ON and ON big time! Think 1930s on steroids. Hard times!
Recession/Depression started in Sept 2001. The consumer's inability to actually pay for goods/services sans credit since this time is proof positive.
I'd have a link/chart, but everyone here knows its true. No point.
So, try, just TRY mssrs. congressmen/senators to impose Austerity.
Sorry, but i disagree. We have been in a shit-pool since 2001. Just because the gment and banksters allowed americans to stimulate the economy via sales pitches such as "house prices only appreciate" and managed to dupe so many fools with the unethical pitch thus fraudulently propping the economy in the early 2000's does not constitute a recovery from 03-08! Any questions, just collectively look at the djia, eur/usd and total government debt! We have just had one crap decade, now get ready for at least another.
Back, back, back...Donald Regan, Robert Rubin, Hank Paulson...
KEYWORD : : Virtual (in the Baudrillard sense of the word)
Get with the times, dude - virtually, no one uses those old 64 kBaudrillard modems any more.
touche'...still have one lying around though somewhere just in case...
I think Rosie is making this all too complicated. There is no past that we can work off of. We are in new territory and have to constantly adjust and keep our thinking moving in what we think is the right direction. I like to short stocks and during the last bear market that is what I did. Then when The Bernank took over whenever I tried a few shorts 5 out of 5 times they failed. So over a year ago I stopped shorting. I really want to short again but will wait till QE3 is well in place. I don't think the ramp will last very long at all before even the sheeples figure it out. I think at that point the odds will be with us.
My other eye is on bonds. TBT and TMV are the vehicles I will use to work interest rates. But again, gotta be patient and wait for your pitch. Many of my trader friends have been bit time and time again trying to time the bottom. At some point they will rocket, all I want is the middle of that cycle.
And lastly, as I have posted here for over 2 years now, gold, silver and miners are my main focus. Why do I want to short when I do not know what this govt. will do tomorrow. With gold, I do not care, sleep well and has worked well.
Maybe too simple for some but, I have my charts, my research and my gold.
Lets not forget the April 27, 2011 Rosenberg market capitulation now.
http://www.cnbc.com/id/42782844
“The (US dollar) is on a one-way ticket south and so far has been orderly—will that be sustained is anyone’s guess,” he writes. “For now it is being viewed as fodder for the global liquidity and risk-on trades.”
The dollar actually traded flat at mid-day Wednesday, reflecting market ambivalence ahead of the first-ever Ben Bernanke post-Fed meeting news conference. But the greenback’s plunge consistently has been met with higher stock prices.
Rosenberg says he is still “nervous” about the US consumer, whose weakness in the wake of the credit collapse hasn’t bothered Wall Street investors much. He also makes an argument about Chinese inflation and equity weakness there.
But mostly, he sees the market trending toward an “important technical signpost” which he says is a “Holy Grail” that entails “new highs led by higher volume.”
Trading activity on the New York Stock Exchange remains weak, though he cites the Nasdaq rally Tuesday on volume above its 50-day moving average as a bullish indicator. He says the tech index activity “is a clear sign that the big boys are putting money to work,” although it would be hard to make an argument that it’s been anyone but the “big boys” responsible for the post-crisis rally. Fund flows show the retail investor has been nowhere to be found.
Rosie made the above statements on April 27, 2011 which also saw the SPX at 1355. The recent bull market high was two days later at SPX 1363. I remember reading that article thinking to myself "what a contrarian indicator" for Rosie to throw in the towel. He is a good economist and his call on long bonds was spotless but for trading purposes his recent record does not help him very much.
Great Avatar! Sub Prime J.D. { I love it}... +1
Recessions are a business cycle phenomenon. You can have recessions and bull markets in depressions. Depressions are a political event defined by fascism and socialism - in rejection of capitalism run amok. If the politicians of both parties didn't take away the depression era restrictions on banks and private credit and money creation we wouldn't be here.
Depressions are also defined by a collapse in money supply- money is credit and vice versa in this culture.
And asset prices as a retainer of money supply and wealth.
If derivatives, credit, assets collapse even the FED cannot print their way out of a credit disaster.
The hot money running only to commodities and casino spread instruments with inherently no value.
You will be in for the ride of your life folks. Destruction of financial machinery, warfare, tech warfare, loss of savings, bank and corporate fascism, neo libertarian revolts, terrorism run amok.
After so many decades of rampant fascism I'll take chaos any day.
wooohooo (messy) FREDOM here we come!
I get to be the executioner at the guillotine on the Potomac and Wall St.
Where the fuck is Joo Lieberman and AIPAC???? They're first!
I gave you vote up so you will let me do guillotine on tuesdays.
O'robyomomma says there will be no double dip! Geitner then tells him that the press is not referring to ice cream!
Ok, so Gold , Silver , Tungsten, Lithium, Farmland, Ammo, and high yielding consumer staples. GOT IT. Add a VMW/ ss AAPL trade as a hedge for a high beta explosion and im set!
Crap. I forgot tungsten and Lithium. Thanks!
Could you please elaborate on "Add a VMW/ ss AAPL trade as a hedge for a high beta explosion?" Thanks!
Lieberwhore is the most despicable piece of shit in the entire US government.
And that is saying something.
Everytime gas hits $ 4.00 a gallon the economy tanks. Why anybody can't figure this out is beyond me. It acts as a huge tax on the poor and middle class.
I'm pretty sure Goldman and JPM are on top of that one. You think the summer of 08 was a fluke?
Wink wink , YEN
Rosie would have saved his reputation if he didn't flip flop and go bullish on the stock market 3 months ago. He was bearish for the last 18 months then he goes bullish in the Spring. He makes some great points, but I am not sure he is in sync with the market. That bullish Spring call will haunt him for years. I hope he learned his lesson.
just buy gold/silver next mini break and watch your little "investment" elevate 20-30% by the end of the year. Rosie is like EVERYONE else today. JUST FUCKING GUESSING. jeeeesh, can we just keep it real for a change. What the fuck was the band playing as the USS Titanic was going down anyway?
Sgorem
Ehhhh, by the way, it was the R.M.S Titanic that sank after hitting the iceberg, not a ship called USS Titanic.
Talk about guessing!
Bill
Wow, I'm glad I didn't miss this one. What a unique and insightful sheeple recommendation, I hope Jim Rogers, Peter Schiff, Ron OPaul, Marc Farber, Harry Dent, James Turk, Bill Murphy, Catherine Austin Fitts, and everyone at the Mises Institute catch this. </SARC>
I completely disagree with Rosie's investment thesis. There will be nowhere to hide just as there was nowhere to hide in 2008 and 1Q09. Maybe he thinks yhis time is different....
Throughout 2008 & 2009 I constantly bought---held----sold DIA and SPY puts, bought ITM puts on my largest equity holdings to protect from losses and avoid paying cap gains taxes and watched my 2 main accounts rise by between 35-45% each, as I have posted b4, if you are correct that the market will get hammered, rather than bitch and complain about "this lousy market" than capitalize on being correct, I have owned DIA puts for the last 6-8 weeks, was wrong for awhile but the DIA 125 and 123 puts that I bought for $1 or less are both up between 300-500% in the last 5-7 days and I plan on selling 1/2 my 125's and buying 118's with the proceeds.
Rosenberg lost credibility when he mentioned "respected" and Martin Feldstein and Larry Summers in the same sentence. I would bet opposite of which ever direction each of those Banksters say the economy will go. One need only look into their backgrounds and see their historical ties to Wall Street and the Government.
I disagree with title. It should read ' Depression is a certainty'
You are a fast learner.
Could anyone please explain what does the following mean?
"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."
buy low, sell high.
George Carlin's words ring truer today
http://lonerangersilver.wordpress.com/2011/08/02/george-carlin-they-dont...
Hell sign me up. Where do I send the check?
I am not really sure where to post this but this looks like as good a post as any to put it on. Let's just say you came into $200k today. I gather that PMs are probably the best option right now. I am completely new to all of this so bear with me.... how exactly would someone go about purchasing that much gold and/or silver? I honestly don't even know where to start but a friend of mine needs help figuring this out. She was going to get it in cash and put it in a safe in her house for fear of bank collapse but I have convinced her on the PMs but it's like the blind leading the blind here.... any help is appreaciated.
BTW not looking for any tips....just looking for someone to point me to a website that may give me the info I need to get started....
Sorry I am such a noob. :) But I am just a nurse who happened to click on a link to ZH one day and found it to be one of the only places that was reporting reality. :)
When you guys talk about "taking delivery" that means actually possesing the metal correct? I feel this is her best option as well, in case that changes the website you would direct me to...
Yes, take physical delivery and have control of the actual metal in hand. This compares to say owning stupid paper representations of PMs eg like GLD, SLV etc. Those are just swapping one form of paper for another - useless.
I agree that gold and silver are a good buy currently, and holding some in hand for what is a real possibility is prudent, but an easier way, especially for a newby is to buy 4 specific stocks, the symbols are GLD..this tracks the actual price of gold without having to hold it, many here will argue all the "problems" with this and the symbol SLV (silver) however for your purposes and circumstances they are fine, no they apparently don't warehouse as much metal as they are supposed to, but that's OK. The other 2 stocks are GDX and GDXJ they are stocks that represent a basket of gold/silver mining companies that obviously make alot of $$$ as the metal prices increase as their cost of production is pretty set so a larger profit margin, GDXJ is smaller mining companies than GDX which is more established larger companies but both do very well as metal prices rise. I hope this helps and again, for your purposes ignore all the banter about negatives of GLD and SLV. Good luck
Thanks for your response. But the truth of the matter is, she and I have ZERO faith in the market. I would go so far as to say I believe there won't even be a market alot sooner than people realize. I think we are in the midst of a catastrophe whose outcome none of us can even imagine much less hedge a bet on. I don't want her holding a fist full of worthless dollars (which is almost what they are already) anymore than I want her holding a fistful of papers for GLD or SLV if/when it all comes down. I know my view is pretty pessimistic but I have watched my whole circle of family and friends lose their asses in the last few years. They have lost massive amounts from 401ks, their jobs, their homes, their entire way of living. We are not wealthy people....hard working blue collar.... From where I sit we can afford to lose no more. I can feel the unrest down here....its not a matter of if, its a matter of when.
www.apmex.com is reliable for quick delivery and usually competitive with their premiums. I've heard Tulving is good also but don't have any personal experience with them. If you feel that 200K is too much to hold at home another alternative is www.goldmoney.com James Turk owns that and you can store gold/silver offshore although you will have to declare the account every June with the Treasury Dept as well as on your 1040 ( I'm guessing this won't be too important of a detail when the banks shutdown). Hope this helps.
I guess the guy that wrote this and the guys he mentions live in another world than I.
I've been in depression since late '08, and so have a lot of other main-streeters.
sorry...still learning how to operate around here....
Rambo, you can take delivery of gold via the futures market but this is a long way around and it seems these days fraught with difficulty. The simplest is to find a local reputable coin dealer selling kruger rands and compare his price to the spot price which you will find on many websites and go buy them and put them somewhere safe - not in a safe deposit at a bank. Here in South Africa I just buy Kruger Rands as they are the easiest to get as we make 'em but there are others. Try to pay less than 4% above spot.
Thanks so much. I will talk to my dad to get a recommendation for a coin dealer.
cute.
disclaimer: "I own precious metals, I own land; and soon I will own serfs."
Guys our government is a mafia style criminal operation!!
Once again they have been caught shipping drugs, this time with their friends in one of the Mexican drug cartels
http://theintelhub.com/2011/08/03/documents-feds-allegedly-allowed-sinal...
@rambo1028: Tulving.com
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