Rosenberg: 10 Near-Term Uncertainties & How to Invest Around Them

In his note on Friday David Rosenberg provided some excellent macro thoughts on big picture themes that are dominating the current landscape.  Here are his 10 near-term uncertainties and how to invest around them:

1)  Fat-tail distribution curve: Need to be more diversified than normal across asset classes and currencies.

2)  Near-6% output gap: Deflation themes trump inflation themes.  Preservation not just of capital, but of cash flows.

3)  Fed to keep rates near 0% through mid-2015: Interest rate volatility minimized; long-short fixed-income strategies in vogue.

4)  $1.7 trillion in cash on corporate balance sheets: Corporate bonds remain a solid investment given prospective low default risks.

5)  Fed to replace Operation Twist with outright bond buying: Treasury yields head even lower, making dividend yield 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.

7)  Stephen Harper around until 2015, Mark Carney around until January 2015; Barrack Obama around until November 2016, Ben Bernanke around until 2014: Very bullish for the Canadian dollar.

8)  Geopolitical tensions — Middle East, China transition, Greek default, U.S. fiscal cliff, high and rising youth unemployment rates and Japan-China rift: Exposure to raw materials is a good hedge against these recurring flare-ups.

9)  Looming political change in Japan: Bad for the yen, good for large cap exporters.

10)  Malthusian population dynamics: That two more billion people to feed in the next 35 years means we need 70% more food; an agrarian revolution is in its infancy stages.

Source: Gluskin Sheff

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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • InvestorX

    Is QE really lowering USTs? The direct effect seems to be: “risk on”, so UST yeilds rise. Now there is the anticipation effect with yields dropping. And the counterfactual effect, would UST yields rise due to the high issuance?

    My impression is that QE leads currently to rising UST yields. In normal conditions probably QE would be seen as highly inflationary, so yields would rise in that situation as well.

    So the Fed’s premise that QE lowers yields is true only in its immediate effect and wrong in its hidden effects. But of course one would be naive to expect the Fed to see beyond its nose.

    Has anyone done a study whether QE lowers yields?

  • Qwerty

    Hi Cullen. Do you know what FED is planning to do on December, 23 2012? Their 99 years of “lease” will be over.

  • SS

    Good list. Thanks for posting.

  • Stephen

    LOL…Mark Carney around until when?

  • http://www.orcamgroup.com Cullen Roche

    Yeah, bad timing there, huh? :-)

  • Geoff

    Carney should go to the Fed instead

  • Boston Larry

    “Has anyone done a study whether QE lowers yields?” Easy, just look at the charts of TLT and TLH. During the three QE’s, overall, prices of Treasuries have gone up and their yields have come down. The opposite happens for a short time when a new QE is announced. After a month or two the overall trend that has been going on for almost four years continues. Treasury yields have slowly worked their way lower.

  • Cowpoke

    From what has been discussed here at Prag Cap over the last year with regards to how QE has affected interest rates and bond yields, I think that YES QE has had some effect, but in a larger picture, lack of safe haven asset classes have been the main driver in a world of trillions of dollars looking for a safe place to park during tumultuous times.
    So with a lack of higher yielding safe harbors for savings and the FED’s QE harping about driving rates down, it (QE) has played a part in driving down the yields (But Not Wholly The Reason).

    Just My Take.

  • Mikael Olsson