David Rosenberg, chief economist and strategist with Gluskin Sheff + Associates Inc., spoke passionately at the recent Foundation, Endowment & Not For Profit Investment Summit in Toronto about his views on the U.S. economy and investing in a deflationary environment.
Rosenberg said that the message coming from the U.S. in this post-credit bubble bust is that everything’s going to be okay. But he is skeptical.
“The U.S. federal government has been flooding the system with liquidity,” he said. The U.S. has a high structural deficit, there are 19 million vacant housing units, and unemployment is still a major problem—6.4 million Americans have been out of work for more than 27 weeks, he added.
Rosenberg said the world is awash in debt. Governments, including in Canada, are starting to move toward restraints, but the U.S. is not doing enough, he said.
There’s ongoing house deflation and ongoing debt deleveraging, and the U.S. will continue to expand its federal balance sheet to offset the ongoing debt deleverage, he said.
The underlying trend is toward deflation, not inflation, said Rosenberg.
Despite the gloomy truth, Rosenberg left the audience with some strategies to invest in a deflationary environment.
- Focus on safe yield such as high-quality corporates (non-cyclical, high cash reserves.) “Corporate balance sheets are in very good shape.”
- Focus on reliable dividend growth/yield preferred charts in equities.
- Focus on companies with low debt/equity ratios and high liquid asset ratios.
- Even hard assets that provide an income stream worked in deflationary environment (e.g., oil and gas royalties, real estate investment trusts)
- Focus on sectors or companies with micro characteristics such as low fixed costs, high variable costs, relatively high level of demand inelasticity (utility staples, healthcare).
- Invest in alternative assets.
- Consider precious metals.