The Fed with its unrelenting monetary stimulus and negative real interest rates has changed the relationship between stocks and bonds, writes Gluskin Sheff’s David Rosenberg.We continue to be in “the throes of a secular era of disinflation,” he writes. In such a low-return environment “cash flow is king.”
We recently featured Rosenberg’s 10 near certainties to invest around yesterday. Today we put together a more detailed overview of his investment outlook for 2013.
Heading into the new year, Rosenberg writes, “what broadly worked in terms of delivering high-single-digit risk adjusted returns in 2012, with very few tweaks, should remain intact in 2013.” And his primary investment strategy continues to be safety and income at a reasonable price (SIRP).
Returns have become much more volatile, which makes the market more suitable for active managers and stock pickers
We've never seen anything like the recent collapse in net worth. Baby boomers no longer see real estate as a retirement asset
The Fed driving real interest rates into deeper negative territory is a great reason to be bullish on gold and gold producers.
And the spread between the S&P 500 dividend yield and five-year treasury yield is at its widest since 1958.
Dividends are up 8 per cent over the past year and 55 per cent since August 2009, while interest income growth is down 2 per cent in the last year and 30 per cent from its peak in August 2008.
With the slack in labour and product markets at 6 per cent the Fed will continue to resort to unconventional measures to lower the cost of capital.
And there is substantial excess capacity in the global economy as well and it will take a long time for this to be absorbed.
In a low interest rate environment, investors should focus on S.I.R.P. (Safety and Income at a Reasonable Price)
...But Europe is also part of the reason that the Fed and the Bank of Canada keep short-term interest rates low.
Household balance sheets need to deleverage, but with the U.S. reemerging as a global export leader household balance sheets should get stronger.
In such an environment gold has acted as a hedge, and investors should consider gold mining stocks that are cheap.
Remember, while it is easy for Bernanke to step on the printing press it is harder for miners to mine gold.
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