Rosenberg: The Best Advice I Can Give You….

David Rosenberg of Gluskin Sheff catches a lot of flak over his macro bearish views, but he’s also offered some excellent insights over the last few years on micro positioning.  In his latest note he says “cash is not king” and offers a few alternatives.  His best idea in this section:

“the best advice I can give you is to search for sources of relatively secure income.  This can mean select REITs – especially with the US residential rental vacancy rates edging down to a mere 4.6% and rental growth steady at roughly 1% per quarter (as per the latest Reis data).  Yields on average have declined to 1.7% but that is still better, more than double, in fact, what you can garner at the mid-part of the Treasury curve.  Intermediate Investment Grade bonds too are a happy medium between risky equity markets and safe treasuries – the average fund has generated a return of over 6% so far this year.  With speculative grade corporate default rates well below average at around 3%, high yield bonds with an average coupon of over 6% are perfectly reasonable, especially given the strength in corporate balance sheets.”

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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Comments

  1. Definetly agree with Rosie’s view on HY, we made the same call at the beginning of the year and now sitting on 10%+ TR in the space. It’s tough making money in FI but not impossible.

  2. Sure, REITs have stable income but you’re paying through the nose to get it. I wouldn’t want the 30-40% capital risk just to pick up 1-2% in yield.

  3. The iShares REIT index etf with ticker IYR has a 30-day SEC dividend yield of 3.5% according to the iShares website. I’m holding about 4% in IYR and another 4% to 5% in HYG (high-yield) but with a close eye on the exit door. When “risk on” switches to risk off these can both go down in a hurry. Although risk markets are strong today IMO we are probably closer to a top than a bottom here.

  4. Be very careful with HY index ETFs because they are generally not great investments. The simplest way to outperform the HY index over the long term is avoid CCCs and LBO financing paper. You don’t get the goosed returns in the good times about avoid the bombs when times get tough. Unfortuneatly you can’t get that in an index…

  5. Cash is not king but I would keep duration low. I bought this week Venezuelan sovereign bonds with a yield to maturity close to 11%. A sizable bet worth 5% of my portfolio. I am now in Argentina, just returned from Venezuela. Don’t have time to post the rationale for this move but, IMHO, the bet is a lot less risky than the market thinks. YTD, I have returned 3.86% with very little risk. It looks like my 5% annual return goal is achievable, following a 7% return in 2011.

  6. Gordon,

    Easy to cherrypick after the fact since he warned people to sell well before this time period as well so take your pick: early warning or missed upside.

    When he said these words, it was August 14, 2008, S&P at 1282:

    http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2008/08/18/the-elusive-bottom.aspx

    “We aren’t past the halfway point of this recession

    “My sense is that we probably aren’t even past the halfway point yet of this recession, the credit losses or the house price deflation. Looking at whether equities may have bottomed or not on an intermediate basis, maybe the recent action to the negative side was an important inflection. In terms of what I do, which is trying to tie the macro into the markets, I have a very tough time believing that we have reached anything close to a fundamental low, either in the S&P 500 or in the long-bond yield, for that matter.”

    Recession probably started in January

    When I take a look at these four key indicators that define the broad contours of the business cycle, they all peaked and began to roll over sometime between October of last year and February of this year. I am convinced that when the NBER does make the final proclamation, it will tell us a that recession officially began in January. Of course, to any market person, this would make perfect sense, because of when the S&P 500 peaked. It did a double top into October, right when it usually does, before a recession begins.”

    There is a good chance we test the 2002 lows”