Strategic Investment Conference: David Rosenberg

Tyler Durden's picture


Submitted by Lance Roberts of Streettalk Advisors

Guest Post: Strategic Investment Conference: David Rosenberg



If you haven’t read the notes from the first two speakers, Niall Ferguson and Dr. Woody Brock, I encourage you to do so. The next speaker at the conference is a friend of mine and one of the most widely regarded economists today. David Rosenberg was previously the Chief Economist at Merrill Lynch and is now the Chief Economist and Investment Strategist at Gluskin-Sheff.   Here are his thoughts.

The 3-D's Deflation, Deleveraging and Demographics

“People continually label me a “perma-bear” which is very inaccurate. I have been a perma-bull on fixed income for a very long time. The reason that Gluskin-Sheff hired me is that my job is to take the economic data points and put them together in a structure from which investments can be made.”

"A Forecast is nothing more than the midpoint of a distribution curve."

When you talk about risk often enough you get classified as a “perma-bear”. The corner stone of asset management is not capital "appreciation" but capital "preservation".

In the second year of this economic recovery (2011) the economy was growing at 1.6%. This is important to understand because in a “normal” recovery the economy should be growing at 5-6% at this same point.

Bob Farells' 10 Market Rules: The 10 Commandments To Remember

  1. Markets tend to return to the mean over time
  2. Excesses in one direction will lead to an opposite excess in the other direction
  3. There are no new eras — excesses are never permanent
  4. Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways
  5. The public buys the most at the top and the least at the bottom
  6. Fear and greed are stronger than long-term resolve
  7. Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names
  8. Bear markets have three stages — sharp down, reflexive rebound and a drawn-out fundamental downtrend
  9. When all the experts and forecasts agree — something else is going to happen
  10. Bull markets are more fun than bear markets.

These are the ten commandments of investing. Not understanding this is what leads to individuals losing large amounts of money over time.

Rules #1 and #9 are the most important to conversation today.

The markets tend to return to the mean over time. Understand this. Just this year there have been two very important covers from Barron’s.

February 2012 - Barron's Dow 15000
April 2012 - Barron's - Outlook Mostly Sunny.

Barron’s has an absolutely horrible track record of putting on their covers bullish sentiment at just about the peak of the market. (He showed many examples of Barron’s covers going back over the past decade.)

At the point of peak bullishness by investors and money managers is when the “reversion” effect will occur. In other words, whatever Barron’s puts on their cover you are wise to do the opposite.

The “Fiscal Cliff”

Under status quo at the end of 2012 roughly 42 tax benefits will expire at the end of 2012. At that point there will be record drag (roughly 4%) on GDP from reduction of those tax benefits to spending. Since the economy is currently barely growing at 2% do the math – a negative 2% economic growth rate is a very large recession.

Ben Bernanke - the Fed has NO ability to offset the impact of the “fiscal cliff.” By the way - recessions tend to happen in the first year of the Presidential cycle.

The last two times, 1960 and 1969, that there was a fiscal retrenchment of the same magnitude both ended in recessions. If there is any one thing to worry about it will be this particular event more than just about anything else.

What about government spending? US government spending runs at approximately $1.50 for every $1.00 brought in. This level of spending is unheard of outside of WWII and is very unsustainable. Furthermore, the longer that this excessive level of debt based spending occurs the more that it becomes a structural problem. Interest payments are at a record share of total revenue as well as the debt as a share of GDP. The high level of debt to GDP, and the subsequent servicing of that debt via interest payments, reduces economic growth. This leads to the real problem facing the U.S. today…Deflation.

Outside of commodity based inflation there is deflation running in everything else from incomes to real estate. This deflation impacts the base of the consumer and the economy. Take a look at the current output gap which is still at some of the largest levels on record. The current economic growth rate is too weak to offset the current slack in the economy.

This is why QE3 is coming and is just a matter of timing.

The deflation in housing is going to continue. Housing is only about 40% through its reversion process. In fact, along with housing, the entire household debt deleveraging process is still in progress and still has a tremendous way to go. This deleveraging cycle will remain a dead-weight drag on the economy for quite a long time.

It is important to understand that the debt bubble didn't happen in 3 years and it won't be cured in three years either.

According to the recent McKinsey study the debt deleveraging cycles, in normal historical recessionary cycles, lasted on average six to seven years, with total debt as a percentage of GDP declining by roughly 25 percent. More importantly, while GDP contracted in the initial years of the deleveraging cycle it rebounded in the later years.

A further pressure on the economy remains excess unemployment. There are roughly 20 million still unemployed versus the long term average of about 13 million. The excess capacity of labor suppresses wages and economic growth. In other words, excess employment leads to deflationary economic pressures.

In regards to employment the only real report to watch is the U-6 report, versus U-3, because it is the most inclusive measure of unemployment. If two full time employees are converted to part time they are not included in the U-3 report but will show up in the U-6 report. The U-6 level of unemployment is still at a higher level than at any other recessionary period.

As I stated, high levels of unemployment, or excess slack in the labor market, leads to deflation in wages. Deflation is wages is very problematic and has a lot do with deflationary prices in the economy.

So, deflationary pressures are why I am still bullish on bonds versus stocks.

Here is an interesting side note. What correlates with bond yields?

88% Fed Policy
75% Core CPI
64% CPI inflation

With the Fed keeping yields at zero through 2014 there is NO rate risk in owning bonds. When bond yields jump up for any reason it is a buying opportunity UNTIL the Fed starts taking the punch bowl away.

Historically, the average yield curve spread between the short and long dated maturities is about 160 basis points. Currently, that spread is about 330 basis points. That spread will revert to the average over time which means that the long bond yield is going to 2%. Buy Bonds and you will get a better return than owning stocks with dramatically less risk.

What type of bonds? I like corporate bonds. Corporate balance sheets are great and have been cleaned up tremendously since the recession. The current corporate default rate is 2% and companies that are BB or BBB rated that have an A rated balance sheet make a lot of sense. There is no debate between stocks and bonds. Bonds are a contractual agreement to pay interest and repay principal over a specified period of time.

Stocks are currently priced for a 10% growth rate which makes bonds a safer investment in the current environment which cannot deliver 10% rates of returns. We are no longer in the era of capital appreciation and growth. The “baby boomers” are driving the demand for income which will keep pressure on finding yield which in turn reduces buying pressure on stocks. This is why even with the current stock market rally since the 2009 lows - equity funds have seen continual outflows. The “Capital Preservation” crowd will continue to grow relative to the “Capital Appreciation” crowd.

Investment Stategy - Safety and Income at a Reasonable Price

  1. Focus on Safe Yield - Corporate bonds
  2. Equities - Dividend growth and yield, preferred shares
  3. Focus on companies with low debt/equity ratios and high liquid asset ratios. The balance sheet is more important than usual.
  4. Hard assets that provide an income stream - oil and gas royalties, REITS.
  5. Focus on sectors or companies with low fixed costs, high variable cost, high barriers to entry, high level of demand inelasticity.
  6. Alternative assets - that are not reliant on rising equity markets and where volatility can be used to advantage.
  7. .Precious Metals - hedge against reflationary policies aimed at defusing deflationary risks.
Your rating: None

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Sat, 05/05/2012 - 21:48 | 2400216 Stax Edwards
Stax Edwards's picture

Fire up the Heidelbergs Ben we're gonna have to get the firehose back out.

Sat, 05/05/2012 - 23:40 | 2400289 Michael
Michael's picture

Who benefits from recovered GDP levels? Certainly not the common people when labor participation rates are back down to 1981 levels.

The Incredible Shrinking Labor Force

The Washington Post:

If the same percentage of adults were in the workforce today as when Barack Obama took office, the unemployment rate would be 11.1 percent. If the percentage was where it was when George W. Bush took office, the unemployment rate would be 13.1 percent.

Sun, 05/06/2012 - 01:11 | 2400366 Gloomy
Sun, 05/06/2012 - 06:44 | 2400469 sabra1
sabra1's picture


With Jobs Few, Internships Lure More Graduates to Unpaid Work
Sun, 05/06/2012 - 12:42 | 2400823 banksterhater
banksterhater's picture

Disability claims due to "stress/mental illness" are up from 33% to 43% of all claims since 2007, this fraud coming after extended U/E benefits end in many cases. Almost nobody EVER gets off disability once on.

Sun, 05/06/2012 - 11:50 | 2400729 DosZap
DosZap's picture

A further pressure on the economy remains excess unemployment. There are roughly 20 million still unemployed versus the long term average of about 13 million.

He is is in LALA land,try 86 Million.

Check out the chart at, and read about PENSON while your at it.

Sun, 05/06/2012 - 22:45 | 2402390 rotagen
rotagen's picture

Gee my kinda guy.  He looks like a warthog, last name Goldberg and he works in the financial "industry".

Sat, 05/05/2012 - 22:11 | 2400238 disabledvet
disabledvet's picture

Again "the US dollar is worthless." deflation in an outright sense will be hard to achieve UNLESS protectionist barriers start going up. I see no evidence of this anywhere in the world right now. Deflation ABROAD is a real possibility as the only functioning consumers are American and Chinese for the foreseeable future. Seems to me the winners are those who have bought the distressed debt for pennies on the dollar. Needless to say "there's more where that came from." my money is on "the return of debt securitization with a vengeance" as the whole world needs that US consumer up and running or else."

Sun, 05/06/2012 - 10:21 | 2400606 Marco
Marco's picture

Why does the world need the US consumers? They could throw darts at a world map and if OPEC and and trade surplus countries bought up the debts of wherever the darts landed it would create consumers just as well ...

Or hell, OPEC could just decide to produce what they needed to pay for their imports.

No, what they really need is for the US to not to go to war ... for that they will keep funding the US.

Sat, 05/05/2012 - 22:28 | 2400248 Corn1945
Corn1945's picture

Buying bonds strikes me as a terrible idea no matter what flavor they are. Inflation is running much higher than the coupons you are getting.

I know I'll get flamed for saying this, but people buying gold and silver should also be buying equities, not bonds. 

Sun, 05/06/2012 - 04:16 | 2400426 CrashisOptimistic
CrashisOptimistic's picture

You're not thinking it through, guy.

The bonds aren't being bought for their yield.  They are being bought for their capital appreciation.

The 10 yr yield was 2.58% the day the US lost its AAA rating.  It's 1.88% now.  That's a 23ish% capital gain for bond holders.  If 1.88%, why not 0%?  Why not -0.5%?  There's a lot of capital gains yet to be earned.

You can't make a case for printing having been excessive (there must always be at least some printing as GDP grows in magnitude and population, too) with a 10 yr at 1.88%.  

If printing is not excessive, you lose the gold is salvation argument.

Sun, 05/06/2012 - 11:37 | 2400714 Acorn10012
Acorn10012's picture

It does seem counter-intuitive. I have money in an old pension account that is invested in bonds. Always surprised to see how well it performs. Not SP500 from 666 to 1400 growth, but respectable.

Sun, 05/06/2012 - 12:31 | 2400803 FranSix
FranSix's picture

I don't think that the bond price appreciates while holding it.  The price is fixed, and the interest rate is fixed, once they're purchased.  A depreciation of the currency will wipe out any of the yield, depending on when you bought the bond.

You only see changes in the bond price during auctions, and in the futures market.  Bond prices are traded as an asset price, which contribute to fluctuating interest rates.  Bonds are also the basis for interest rate derivatives.

Thus bonds form the basis for delta hedging strategies using the Black Scholes options pricing model.  The position, or hedge with its massive leverage is known as a derivative.  As an example, you basically sell the miner and buy the treasury option.  Both of these trade on a percentage of change.  More than likely the treasury option can appreciate from something like a few cents or a few dollars to $30 per contract on a quarterly basis depending on the strike price.  This is consistently better performance than any mining stock that I know, or even the gold price.

Dividends are important in this context(rather than say, demographics), because in the assumptions of the model, you go by forward earnings, not trailing earnings.  So you should see sideways trade at a certain price of any stock that trades in the market and pays a dividend.

The fly in the ointment is that perhaps many corporate balance sheets are almost wholly dependant on consistent appreciation in delta hedging strategies, or the expansion of derivatives.  So the debts are not necessarily as advertised.


Sun, 05/06/2012 - 12:51 | 2400840 banksterhater
banksterhater's picture

I bought corporates in 2008 but on secondary/high yield Fidelity primarily, all the "safer" BB or better are not yielding SQUAT after the premium to nav, I put $100K in 15-month FDIC CD earning .7% about 6 months ago, the yield insured and competitive to a good corporate. Go ahead, look at prices of a BP, XOM, V, T, it's all WAY overpriced, you have to go to a Sprint, Cinn Bell, and all the ng frackers are desperately selling high yield, those are suicide. I managed to get Commercial Metals bonds when Ichan was trying to buy them at $92 I think, when he failed, the bonds zoomed up to now $102 I think, so there's a special situation to look for. By the same token, I got some Thompson Creek and I lost money so far on 3 bonds.

Sun, 05/06/2012 - 13:33 | 2400928 FranSix
FranSix's picture

The natural gas example is a pretty good one, because you're seeing a depreciating commodity price in a depreciating currency while the corporate bonds for the sector are making promises they can't keep.

How you might achieve growth when prices for actual goods and services are receding against inflation in a zero interest rate regime, and then expect corporates to preserve your capital as they are unusually dependant on the expansion of derivatives, rather than producing goods is a question that has yet to be answered.

Sat, 05/05/2012 - 22:32 | 2400252 Hohum
Hohum's picture

GDP grew at about 3.3% per year 1970-2000.  Then 1.7% from 2000-10.  Dudes, the times they are a'changin.

Sun, 05/06/2012 - 12:56 | 2400847 banksterhater
banksterhater's picture

GDP measures spending, which is not prosperity, it counts debt creation as growth, in fact, without debt creation, the US has had no GDP for decades. The latest GDP report was criminally fraudulant because the BEA used 1.5% annual inflation imput (DEFLATOR) when their own sister agencies have inflation running at (also fraud) 2.8%, meaning GDP IS NEGATIVE now. MSM ignored this, like the 200K+ birth-death added on the NFP (that's 30K more than the 170K added in April 2011)

Sat, 05/05/2012 - 22:38 | 2400259 Precious
Precious's picture

"very unsustainable"

I love this kind of hyperbole.

Sat, 05/05/2012 - 22:51 | 2400274 Tinky
Tinky's picture

I'm more concerned about the atrocious grammar. Either something is unsustainable or its not.

Sat, 05/05/2012 - 22:50 | 2400270 LetThemEatRand
LetThemEatRand's picture

The corner stone of asset management is not capital "appreciation" but capital "preservation".

How insanely pitiful is it that these guys get paid now to try to not lose money for you.  And they ask you to thank them if they keep you even or less behind than average.  

Sun, 05/06/2012 - 21:12 | 2402196 long-shorty
long-shorty's picture

looks like you just pissed off 7 people in the investment industry.

Sat, 05/05/2012 - 22:56 | 2400280 vast-dom
vast-dom's picture

just let me know when the crash is due, a few days in advance,,,,,,thx.

Sun, 05/06/2012 - 01:43 | 2400377 Central Wanker
Central Wanker's picture

What are you going to do then? Just curious...

Sun, 05/06/2012 - 04:31 | 2400431 Nachdenken
Nachdenken's picture

Tough oner, CW.  The three G guys (Guns, Gold, Garden) got it made.  The rest, including yours truly, just whistle a happy tune.

Sun, 05/06/2012 - 13:30 | 2400861 banksterhater
banksterhater's picture

If the S&P breaks March low 1340, (see low to left around March5th>


you have the crash. Now, it's April low 1358 to watch. This coincides with the Russell making a quad-bottom at 78, a clear head & shoulders top, so far, R2K has been leading down.

The BIG BOGEY is if the 30 underwriters for Farcebook will support this market, I have said all along, lots of money on the line, however, it may have been moreso when only 4 (Goldman Morgan S JPM Credit Suise I think) were chosen initially, they added 26 more for competition, maybe this dilluted any incentive?

Sat, 05/05/2012 - 23:17 | 2400295 LongOfTooth
LongOfTooth's picture

How can these guys make predictions based on historical data when the market, the money supply, the price of precious metals, etc., etc., etc. are being manipulated?



Sun, 05/06/2012 - 01:15 | 2400313 lizzy36
lizzy36's picture

All he is saying is the US is engineering a soft landing in living standards for the bottom 80%, with more wealth going to upper 20%.

How successful they are at central planning is the issue.

With a market that has crashed 2x in last 12 years, and gone absolutely no where from then to now, capital preservation and income are prudent rational goals.

Sun, 05/06/2012 - 09:26 | 2400549 centerline
centerline's picture

Also depends on how people react.  Most now have a childish sense of entitlement to the unsustainable standard of living (or welfare) we afforded over the last 3 decades using borrowed money (debt).

In the end analysis, it still doesn't add up.  There is no way to pay for the all the promises that have been made without inflating current debts into insignificance.  The end result is a reduction in the standard of living well below poverty levels for anyone banking on social security, pension, etc.  Actions by the Fed over the last few years have really only been life support in this regard to avoid municipal failures from cascading across the nation.


Sun, 05/06/2012 - 10:35 | 2400626 Marco
Marco's picture

Only consumption is unsustainable ... education, healthcare and elderly care is mostly just a question of human resources ... resources we had, have and will have.

The frequency with which the lower classes can afford to change their furniture will have to change ... but what quality of life they get apart from conspicuous consumption is a policy/fiscal choice. (How much do you want to tax the rich to pay for it? Taxation in this respect serves a dual purpose, both to pay the wages ... but also to suppress the wages in other areas to attract competent people without making the whole thing unaffordable.)

Sat, 05/05/2012 - 23:44 | 2400316 Stoploss
Stoploss's picture

God knows i love Rosie, but im having trouble with 2, 3, and 5.

No equities, divy's or otherwise, an i would trust a crack whore before any balance sheet of any company while this fiasco persists.

Nope, no equities, XOM hgcb baby.. That's the last bastion.

Sun, 05/06/2012 - 06:52 | 2400470 deKevelioc
deKevelioc's picture

ZeroHedge seems to be obsessed with Rosenberg.

Sun, 05/06/2012 - 00:32 | 2400338 sitenine
sitenine's picture

To borrow a phrase, it's not about return on your capitol; it's about return of your capitol.

I'm sure Timmy and Benny are chatting it up at this very moment.  It's getting pretty close to printing time, isn't it?  I mean, Friday's action saw gold decouple from the shit they call equities, and WTI crude is well under the century mark.  This is a big signal IMHO.

Sun, 05/06/2012 - 04:41 | 2400433 Nachdenken
Nachdenken's picture

The slide especially in the DAX well below the conventional wisdom 6700 support, WTI, Gold and Silver will most likely bounce on CB and state-majoriy bank buying.  They screw the indicators every time.  As Rosie implies, the baby boomers and state pensions / welfare comittments in Europe will keep paper assets flying high.

The Monday Morning After will drive the markets one way, up, through a whipsaw once non-algo traders clean their stops out.


Sun, 05/06/2012 - 14:36 | 2401015 sitenine
sitenine's picture

As Rosie implies, the baby boomers and state pensions / welfare comittments in Europe will keep paper assets flying high.

Really?  With no new pension money going in, and benefits coming out; you really think the sky is the limit?  Interesting view point - I'd honestly like to know how you managed to reach that conclusion.

Sun, 05/06/2012 - 00:37 | 2400347 ChrisFromMorningside
ChrisFromMorningside's picture

The unmentioned here is foreign equity markets (and I don't mean Japan, or the UK). Over the next decade or so, as the US equity markets go through their death throes, a lot of foreign equity markets will really mature. It can get you out of the whole USD dollar-matrix and the upside is usually much larger. Of course, the access doesn't exist for mass retail investment right now but it'll be interesting to see if and how that changes. 

I think Rosenberg is too bullish. We're not as far into the deleveraging process as he assumes. As ZH has shown previously, household debt actually went on an upward curve over the past few years thanks to government "stimulus" (debt) of various forms. The student loan bubble is still roaring. There's a sub-prime auto loan bubble growing as we speak. Then, on an international scale, we still have housing bubbles in Northern Europe, China, Australia and Canada that are patiently waiting for the axe to fall any day now. Wait til all of this aforementioned shit hits the fan and then that will throw commodities into chaos and bring on a new sovereign debt crisis (as if the last one ever ended). Then repeat. As Nigel Farage said, you ain't seen nothing yet! We're still at least a year or two away from a *real* deleveraging cycle, which will be very visible (no longer deniable by the mainstream presstitute media and its fake BLS stats) and very painful on a human level. 

I think the most interesting economic news I've read recently is one that hasn't gotten play on ZH. Net migration from Mexico to the US is estimated to have hit zero. In other words, for the first time in a while, a whole lot of people seem to think it makes more sense to grow corn in Oaxaca than cook and wait tables in LA. I think that's pretty telling of the way things are going in this nation. I predict it'll go negative soon and you'll see a few million people who had settled in the US leave and go back to Latin America for better standard of living. This demographic change is primarily going to have effect in the Southwest, where the housing market is already the most depressed and broken in the US. Add in the ZH predictions about the explosive growth in the retail sector and the inevitable contraction that is coming and damn, household networth for the bottom 80% is about to get rocked. 

Sun, 05/06/2012 - 00:43 | 2400354 tony bonn
tony bonn's picture

"....Bonds are a contractual agreement to pay interest and repay principal ...."

what fucktardedness.....has this buffoon not read about the massive breaches of contract over the past 5 years in regards to all manners of contract, subordinations, etc etc?? gm, boa, robosigning, chrysler....

Sun, 05/06/2012 - 00:48 | 2400360 sitenine
sitenine's picture

I caught that as well.  I've pretty much come to the conclusion that paper is paper, and arguing over the safest or most lucrative paper has become somewhat of a joke to me.

Sun, 05/06/2012 - 11:07 | 2400690 Gloomy
Gloomy's picture

No he's correct, they are contractural arrangements --and all contracts are made to be broken,

Sun, 05/06/2012 - 01:02 | 2400363 ItsDanger
ItsDanger's picture

I feel the economic discussion noted in this piece is far too simplistic.  Lower/middle incomes paying more getting less, past/current/future debt/obligations, mediocre employment prospects, depressed interest policy, etc.   Many countries have attempted to mask the problems with low interest, cheap housing, cheap imports, cheap labour when it will just feed on itself eventually.

Sun, 05/06/2012 - 02:11 | 2400386 q99x2
q99x2's picture

I just listened to the latest news on the H5N1 mutations. This article seems rather cheary. Back to meditaion.

Sun, 05/06/2012 - 08:34 | 2400515 orangegeek
orangegeek's picture

Investment Stategy - Safety and Income at a Reasonable Price

  1. Focus on Safe Yield - Corporate bonds - nothing but short term
  2. Equities - Dividend growth and yield, preferred shares - if markets tank, dividends won't help
  3. Focus on companies with low debt/equity ratios and high liquid asset ratios. The balance sheet is more important than usual. - if markets tank, all stocks will get hit
  4. Hard assets that provide an income stream - oil and gas royalties, REITS. - in deflationary times, commodities will be hit too.
  5. Focus on sectors or companies with low fixed costs, high variable cost, high barriers to entry, high level of demand inelasticity. - focus on wealth preservation
  6. Alternative assets - that are not reliant on rising equity markets and where volatility can be used to advantage. - can you be specific and name ONE?
  7. .Precious Metals - hedge against reflationary policies aimed at defusing deflationary risks. - if prices go up, I make a profit,  if prices go down, I lose.  gold is no exception.  long gold today is a bet that prices will go up.
Sun, 05/06/2012 - 09:20 | 2400545 DOT
DOT's picture

I'll name a few "Alternative Assets":



Valuable Job Skill ( sorry app writers) , can you milk a cow ?

Strong neighborhood and family connections

Tools that require no electrity



There are are, of course, more.

Sun, 05/06/2012 - 10:50 | 2400658 ebworthen
ebworthen's picture

Good stuff, thank you.

Precious metals, aye.

Sun, 05/06/2012 - 13:08 | 2400870 banksterhater
banksterhater's picture

Like I say, show me a corporate bond with a decent yield that is safe and not WAY OVERPRICED, anyone? Any decent yield is CCC

Sun, 05/06/2012 - 13:45 | 2400953 Dubaibanker
Dubaibanker's picture

Why nobody told to focus on this before 2007...where were they....when we all were being looted.....We would all be RICH, if they gave this free advice pre crisis and not post crisis...when things MAY just turn around over the coming years.....though, I doubt it.....then, they come and say to focus on bonds, before cost inflation hikes everything , or focus on dividend growth, which is a value strategy instead of focusing on growth.....

Please tell me what company is in 5, so I can go and buy it! :)


Investment Stategy - Safety and Income at a Reasonable Price

  1. Focus on Safe Yield - Corporate bonds
  2. Equities - Dividend growth and yield, preferred shares
  3. Focus on companies with low debt/equity ratios and high liquid asset ratios. The balance sheet is more important than usual.
  4. Hard assets that provide an income stream - oil and gas royalties, REITS.
  5. Focus on sectors or companies with low fixed costs, high variable cost, high barriers to entry, high level of demand inelasticity.
  6. Alternative assets - that are not reliant on rising equity markets and where volatility can be used to advantage.
  7. .Precious Metals - hedge against reflationary policies aimed at defusing deflationary risks.


Sun, 05/06/2012 - 20:11 | 2402045 Bubbles and Busts
Bubbles and Busts's picture

In Treasury Yields Low for Good Reason, I noted that “interest rates are a function of the expected rates over that time period.” From this perspective it should be no surprise that bond yields are highly correlated with Fed policy. With GDP and job growth slowing, the Fed is likely waiting for stocks to take a dive before going ahead with QE4 (Operation Twist was QE3). In my Predictions for 2012 I suggestedthe Fed will move its forecasts for the first interest rate hike out to 2015.” Yields will drift lower in response to that change, hence Rosenberg’s long bond yield target remains a reasonable expectation for bond bulls.

Sun, 05/06/2012 - 21:25 | 2402236 dserfc
dserfc's picture

I regret, but I can help nothing. I know, you will find the correct designer handbags Do not despair. It seems to me, what is it was already discussed. It not absolutely approaches me.

A home is just a place to keep your stuff while you go out and get more stuff. Then pick up as innumerable new links to this handbags Such links can by far get such as net directories.

cheap bags Great job on the site, it looks wonderful. I am going to bookmark it and will make sure to check often cant tell you how much I, for one appreciate all you do!

Do NOT follow this link or you will be banned from the site!