In this morning’s Breakfast With Dave, analyst David Rosenberg discusses the various strategies that you, the investor, can use to hedge against losses during a period of delfation. When commodity prices are falling and the dollar is dropping, here’s how you protect yourself:
1. A focus on safe yield, wherever you can get it. High-quality corporates (non-cyclical, high cash reserves, minimal refinancing needs)
2. Equities: focus on reliable dividend growth/yield; preferred shares (“income” orientation).
3. 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 at all costs.
4. Ultra-selectivity with regard to financials. Same for retailing.
5. 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).