DAVID ROSENBERG: Here Are 10 Near-Certainties In A Sea Of Uncertainty

David Rosenberg

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 ten-near certainties that Rosenberg says to invest around [presented verbatim]:

  1. 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.
  2. 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.
  3. 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.
  4. $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.
  5. 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.
  6. 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).
  7. 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.
  8. 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.
  9. U.S. energy self-sufficiency: Still a forecast, but this has positive implications for the manufacturing renaissance story.
  10. 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.

SEE ALSO: Deutsche Bank: 13 Outlier Events For 2013

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Read more from source:“Business Insider”

David Rosenberg Presents 10 Things In The Economy That Are ‘Nearly-Certain’

David Rosenberg

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 ten-near certainties that Rosenberg says to invest around [presented verbatim]:

  1. 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.
  2. 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.
  3. 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.
  4. $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.
  5. 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.
  6. 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).
  7. 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.
  8. 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.
  9. U.S. energy self-sufficiency: Still a forecast, but this has positive implications for the manufacturing renaissance story.
  10. 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.

SEE ALSO: Deutsche Bank: 13 Outlier Events For 2013

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Read more from source:“Business Insider”

2012 Was A Historic Year In Monetary Policy — And It Just Had The Perfect Ending

japanese yen

2012 has been a historic year in monetary policy.

Here are the big events:

  • The ECB came into its own. The monetary structure of the Eurozone has been flawed from the get-go, but the sovereign debt crisis that started in 2009, really drove home the fact that the nations in the currency bloc were weak due to the fact that unlike other countries, they did not have “their own” currency or central bank to back them up. Everyone recognized that the only way the crisis could end would be for the entity with unlimited money — the ECB, because it has a printing press — to get in there as a lender of last resort. That’s what the ECB is now doing, with its promise to buy bonds of countries that request it, on condition of reform.
  • The FED changes the goalposts. At the beginning of 2012, there was no active QE program, and the only promise was to keep rates low through 2014. Then over the summer, the Fed changed the game, with its announcement of QE-open ended, a promise to keep buying bonds until the economy improved. There would be no cap. Then at its last meeting, it adopted “Evans Rule” a promise to keep money easy until unemployment hit 6.5% or inflation projections hit 2.5%, meaning that for the first time, the Fed was really offering guidance and expectations management, an approach long favored by academics.
  • Michael Woodford endorse Nominal GDP Targeting. This August at the Jackson Hole conference, Michael Woodford, one of the world’s most pre-eminent monetary policy economists basically came out in favor of an approach where the Fed targeted a specific level of economic output. This was a huge endorsement of a buzzy idea, and it’s likely one reason that the Federal Reserve has moved so fast to attach specific goals to its easing.
  • The Bank of England’s big poach. In what is (hopefully) a sign of things to come for the monetary policy world, the BOE poached Mark Carney from the Bank of Canada. Carney is considered the world’s best central banker, and now he has a huge stage, and a huge challenge (a weak economy, a gangly banking system, a government with tons of debt, etc.). It will be good for the world economy if tests can rise up from smaller central banks, and be applied globally.
  • Abe wins! Just capping it off now, Shinzo Abe has won the election on Japan, and he’s run on a platform of forcing the Bank of Japan to do more easing. His first priority he says: Defeat deflation!

For more on today’s big Japanese election, see here >

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FINANCIAL ADVISOR INSIGHTS: Advisors Are Rejecting Modern Portfolio Theory (SPY, DIA)

Legendary Investor Jack Bogle Reveals Six Books Every Investor Should Read (Business Insider)

Business Insider’s Sam Ro asked Jack Bogle, founder of Vanguard for his investment must-reads. Bogle picked The Intelligent Investor, A Random Walk Down Wall Street, Unconventional Success, The Four Pillars of Investing, Extraordinary Popular Delusions and the Madness of Crowds, and The Bogleheads’ Guide to Investing.

HP Might Have One Of The Great Undiscovered Asset Managers (Bronte Capital)

Working through Hewlett-Packard’s 10 K’s and its defined benefit pension fund, money manager John Hempton writes that HP might have the best hidden fund manager. “Gretchen Tai and Hewlett Packard perform much better than you would expect given the diversity of their portfolio. Gretchen Tai really is one of the great undiscovered asset managers.”

Bears Are Passing Around This Recession Indicator (Business Insider)

Bearish investors have been passing around a chart from Lance Roberts of StreetTalkLive that looks at ratio of coinicident to lagging indicators and that is considered a leading indicator of recessions. Each time the ratio has been at current levels according to SocGen’s Albert Edwards, the economy has been in or close to a recession.

lei recession

Schroders Investment Management Thinks 2013 Is A Good Year For Global Equities (Advisor Perspectives)

Going into 2013 investors will start to stock up on equities given that stocks are cheaper than bonds.

Europe has made headway in dealing with its debt crisis and “although in absolute terms the fiscal stance in the region will tighten in 2013, the pace of discretionary fiscal consolidation is likely to slow”. And the U.S. economy is “unlikely” to enter a recession all of which will support global stock markets. The “emerging markets supercycle theme remains as relevant as ever” as well.

Financial Advisors Are Rejecting The Modern Portfolio Theory (The Wall Street Journal)

Financial advisors are increasingly beginning to question the Modern Portfolio Theory according to which investors can “maximize returns for a given amount of risk by selecting the right mix of assets”. Some now believe that this theory only works for long-term investors and that it doesn’t adequately account for black swan events and the like.

David Rosenberg’s 2013 Market Call Is Here (Gluskin Sheff)

Gluskin Sheff’s David Rosenberg is out with his market expectations for 2013. In today’s Breakfast with Dave note he writes that investors should focus on dividend growth, defensive stocks, and gold miners – an emerging stock market strategy he mentioned before. He also writes that interest rates are going nowhere, that corporate bond prices could increase, and the oil looks attractive in the long-term.

“The conservative investor should maintain a defensive posture.  An emphasis on fixed income and bond proxies within the stock market. Accumulation of cash flows is key, as it was this year.  But there will be opportunities, as there is every year, to take advantage of under-priced securities.”

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Bank lending to UK property market hits post-Lehman low

A view of Canary Wharf on the River Thames in LondonLONDON (Reuters) – Bank lending to Britain's property market is at its tightest since the collapse of U.S. investment bank Lehman Brothers, a report showed on Friday. Though lending has picked up since Lehman collapsed in 2008, the protracted euro zone debt crisis and shaky domestic economic data has hit confidence among banks, making them more wary of offering new loans to property companies. The proportion of banks planning to increase lending on property was 42 percent at June 30, down from 57 percent in 2010 and 44 percent in 2011, a study from Leicester-based De Montfort University …

Read more from source:“Yahoo”

John Boehner And Republicans Have Sent Obama Another Fiscal Cliff Counteroffer

john boehner

House Republicans have sent the White House another counteroffer to avert the so-called “fiscal cliff,” Speaker John Boehner’s office confirmed Tuesday.

Boehner’s office did not provide any details or specifics about what the offer contains.

Boehner spokesman Michael Steel provided a brief statement:

“We sent the White House a counter-offer that would achieve tax and entitlement reform to solve our looming debt crisis and create more American jobs. As the Speaker said today, we’re still waiting for the White House to identify what spending cuts the president is willing to make as part of the ‘balanced approach’ he promised the American people. The longer the White House slow-walks this process, the closer our economy gets to the fiscal cliff.” 

Politico reported that Obama sent Republicans a counteroffer on Monday.

The GOP’s latest offer comes just more than a week after its original counter-proposal. In that offer, Republicans tried to re-establish a new framework from which to negotiate, based off a plan outlined by former Clinton chief of staff Erskine Bowles. 

It proposes to increase revenues by $800 billion through eliminating loopholes and deductions for the wealthiest Americans, cutting $900 billion in mandatory spending and $300 billion in non-discretionary spending.

Earlier on Tuesday, White House press secretary Jay Carney rebutted Boehner’s charge that the president had yet to offer specifics. 

“The President, unlike any other party to these negotiations, has put forward detailed spending cuts as well as detailed revenue proposals. It is a simple fact,” Carney told reporters, subsequently holding up a copy of Obama’s 2011 budget plan.

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