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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