David Rosenberg is pretty confident the economy is going to get worse and may even be headed for a depression.
But right now, his main concern is deflation or a stall in price increases, and he’s preparing investors for such a scenario.
Rosenberg has put together a list of 7 ways investors can prepare for deflation, and where they can put their money.
High-quality corporates (non-cyclical, high cash reserves, minimal refinancing needs). Corporate balance sheets are in very good shape.
Examples (our own): Utilities
Whether it be credit or equities, focus on companies with low debt/equity ratios and high liquid asset ratios -- balance sheet quality is even more important than usual. Avoid highly leveraged companies.
Examples (our own): Microsoft, Apple
Even hard assets that provide an income stream work well in a deflationary environment (ie, oil and gas royalties, REITs, etc...).
Examples (our own): Large energy companies. Exxon.
Focus on sectors or companies with these micro characteristics: low fixed costs, high variable cost, high barriers to entry/some sort of oligopolistic features, a relatively high level of demand inelasticity (utilities, staples, health care -- these sectors are also unloved and under owned by institutional portfolio managers).
Examples (our own): United Health, Aetna
Allocate significant portion of asset mix to strategies that are not reliant on rising equity markets and where volatility can be used to advantage.
Examples (our own): Farmland, venture capital
A hedge against the reflationary policies aimed at defusing deflationary risks -- money printing, rolling currency depreciations, heightened trade frictions, and government procurement policies.
Examples (our own): Gold, Silver