ROSENBERG: 7 INVESTMENT IDEAS FOR 2012

David Rosenberg is out with his investment strategy for 2012 and he’s recommending that investors approach the potential deflationary environment with a SIRP approach – safety and income at a reasonable price.  He offers 7 different ways to implement this strategy:

“Many investors increasingly want preservation of cash flow as well as preservation of capital. We concur and have consistently recommended a focus on S.I.R.P. — safety and income at a reasonable price, with a primary focus on stability and prudent risk-taking.

1. Focus on safe yield: High-quality corporates (non-cyclical, high cash reserves, minimal refinancing needs). Corporate balance sheets are in very good shape.

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.

4. Even hard assets that provide an income stream work well in a deflationary environment (ie, oil and gas royalties, REITs, etc…).

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 — these sectors are also unloved and under owned by institutional portfolio managers).

6. Alternative assets: allocate significant portion of asset mix to strategies that are not reliant on rising equity markets and where volatility can be used to advantage.

7. Precious metals: A hedge against the reflationary policies aimed at defusing deflationary risks— money printing, rolling currency depreciations, heightened trade frictions, and government procurement policies.”

Source: Gluskin Sheff

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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Comments

  1. Cullen, thanks for posting this. Although David Rosenberg is not a good timer, I feel that he is a great strategist. I have followed him over the past four years, and he has given great strategic guidance. If he is right that in 2012 we will either have very low inflation or even outright deflation, then a major part of your portfolio should be in investment grade corporate bonds. For the past 6 to 9 months I have had 40% of my portfolio there, and it has done better than equities. Cullen, isn’t your work based on MMT also predicting low inflation in the current environment?

      • @EconFan. Sorry for the late response, as I did not see this until now.
        Three ETF’s that I would recommend gradually buying into with limit orders to get a lower price are: VCLT, VCIT, and LQD. These would give you good exposure to US Corporate bonds.

  2. Just thought this piece by SurlyTrader might be interesting to some:
    http://www.surlytrader.com/protecting-your-equities/

    looks like Dividend Stocks + Volatility Instruments would have been a big winner, of course with “would have been” the key word. But I think we can agree that the trading environment in the last few years was a bit different from experiences from decades ago.

  3. Same Ole … “He said the exact same thing, at the same time, last year.”

    For the past 3 years, faithfully applying SIRP – with disciplined emphasis on all three elements – would have put a smile on your face today, as it will do for the next 3 years assuming our dear balance sheet recession continues its muddling along and no major black swans come along to upset the apple cart.

  4. Cullen,

    Have you read anything on Frank Byrd who gave a presentation at Jim Grant’s conference last year regarding gold and inflation (or maybe two years ago)? Anyways, he makes some excellent points about how inflation will pop up via bottlenecks. He points out that even though money supply doubled in the past twenty years so did production. So even though people were consuming more, corporations etc. were building more capacity that matched consumption and thus negated inflation. That changed after the financial crisis as firms will hold cash and not produce extra capacity in the form of factories, production etc.Additionally, the government will step in for the consumer to keep us afloat. Anyways, probably a bad summary but definitely google him and see if you can find a presentation like his. Very interesting .