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Europe’s debt crisis continues, the U.S. fiscal situation is up in the air and Japan has entered a technical recession, creating a “sea of uncertainty”.In an environment with low returns, slow economic growth, and political uncertainty, Gluskin Sheff’s David Rosenberg writes that SIRP – safety and income at a reasonable prices – continues to be his primary investment strategy.
Despite all the ambiguity, however, some things are almost certain. Here are 10-near certainties that Rosenberg says to invest around [presented verbatim]:
- We remain in a classic post bubble ‘fat-tailed’ distribution curve, where the range of possible outcomes is much wider than in past recovery phases. This will remain the case in 2013, and until such time as all the major global debt imbalances have been fully resolved.
- Near-6% U.S. output gap; 3%+ global gap. The world is still awash with excess capacity across labour and product markets. As such, disinflation themes will keep trumping inflation themes. This puts preservation not just of capital, but of cash flows, front and centre in terms of core investment strategies.
- Fed likely to keep rates near 0% through 2018 (according to our analysis): Interest rate volatility minimized; long-short credit strategies should remain core to any bond strategy.
- $1.7 trillion in cash on U.S. corporate balance sheets: Even though yields have plunged in the past year, corporate bonds remain a solid investment given prospective low default risks, especially given still-wide spreads relative to the government sector.
- Fed to replace Operation Twist with outright bond buying: Treasury yields to head even lower, making dividend yield and ‘bond proxies’ in the equity market that much more alluring.
- Real interest rates to remain negative: This is a very powerful positive thrust for the precious metals complex, and should help establish a firmer floor under the stock market given the implications for “discounted” earnings growth (i.e. a lower cost of capital).
- Stephen Harper around until April 2015 (at the least), Barack Obama around until January 2017: Along with diverging monetary policies, the stark political divide is bullish for the Canadian dollar.
- Geopolitical tensions — Middle East, China’s political transition, Greek default risks, U.S. fiscal issues, high and rising youth unemployment rates in Europe and Japan-China rift: Exposure to raw materials is a good hedge against these recurring flare-ups.
- U.S. energy self-sufficiency: Still a forecast, but this has positive implications for the manufacturing renaissance story.
- Malthusian population dynamics: That two billion more people to feed in the next 35 years means we need 70% more food; an agrarian revolution is in its infancy stages.
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