# David Rosenberg explains why the turbulence on Wall Street is far from over.



## leoc2 (Dec 28, 2010)

David Rosenberg, Gluskin Sheff + Associates, explains why the turbulence on Wall Street is far from over.

http://classic.cnbc.com/id/15840232?video=3000039127&play=1

*He has been correct about the state of the markets for a long time now. He sees a recession coming. He likes defensive dividend yielding stocks but he recommends investing in corporate bonds. Equities may take a hit if earnings are revised downwards. Corporate bonds should less risky as good companies can honour their debts with cash on the books and this low interest environment.*



*Here is the transcript:*

*Is there data that perhaps is surprising you on the upside?* We had some positive data. We have some positive points. Everybody leaps onto the latest piece of economic data that will get revised anyway. What you want do is look at the three month trend economic indicators. The retail sales, 2.8% annual rate. Strip out inflation, it's basically flat. The end of last year, running over 10%. You look at industrial production it's running fract n fractionally negative on a three month basis. Last year, at 6%. I can go through every single indicator, the data are not showing a contraction ... just yet. We are basically slowing down very dramatically. There will be a lag between this latest financial shock, not just in the stock market but look and see what the credit market has done. Look what high yield interest rates, spreads of 200 basis points the last few weeks alone. There will be a lag impact from this financial shock over the economic data the next couple of quarters. I imagine there is a lag for six weeks when everybody sat on their hands while the brain surgeons in Washington went back and forth over the debt ceiling, it's your fault, no, it's your fault, everyone was frozen, that has to show up in the gdp numbers as well at some point. 

*What does the fed's language this week tell you?* Saying it will keep interest rates at exceptionally low levels until 2013. Is that enough stimulus to perhaps avoid the worst going back into a double dip? Well, you know, the first part of the press statement, forever you read it, was basically, all about how the economy hit stall speed and fed coming out and saying for all the talk about how it was transitory factors impeding growth, the fed has backed away from that view. In terms of the policy of keeping the funds rate where it is for the mid-part of 2013, when you take a look at the fed funds future strip, it was really nothing priced in for 2013 anyway. I think what this is going to do over time is reinforce a flatter yield curve. I think long term rates will grind lower. In the hope of growing every basis point will be a slow grind and be a slow grind until we get to the next economic expansion and bull market. 

*Will the policy of keeping rates low push investors into the market as they look for yield, do you think?* It depends what part of the market. I think when you look at the first part of the statement, the fed telling you, without parsing the words, we're staring a recession in the face. I don't think that's fully priced into the cyclical part of the market, the consumer I don't think that's fully priced into the cyclical part of the market, the consumer discretionary. I think earnings visibility is going to be key. I think companies that have dividend yield, if you're going to be in the stock market, be in the earnings visibility, defensive sectors that have dividend growth, dividend characteristics. We're talking about the market and mark-up on the market. 

*What about the corporate bond market?* *What we like to do for our clients is get them equity like returns without taking on equity risk. The big risk for equities is earnings revision ratios for the next two quarters. In the corporate bond market you don't worry about earnings you worry about ability to pay your debt. I don't have earnings visibility but went into this with corporate default rates in cycle lows and balance sheets in the best shape in 50 years. Credit with the widening in spread the past two weeks is at a very appropriate place for clients to start allocating their capital towards. *all right. We will leave it there. Great to have you on the program.


----------



## fatcat (Nov 11, 2009)

he seems to be echoing the view that corporate earnings are not going to look so good in the future, this dovetails with a possible rise in the us dollar which will make earnings from overseas look less rich and earnings not quite so rosy but the corporate balance sheet is looking good with lots of cash on hand so a move to corporate bonds is a good idea

so i guess that consumer staples, utilities, energy and corporate bonds is the way to go

actually i think he said that in one of his letters recently


----------



## Betzy (Feb 7, 2011)

So how does one aquire corporate bonds?


----------



## HaroldCrump (Jun 10, 2009)

Betzy said:


> So how does one aquire corporate bonds?


Through your brokerage, under the Bonds section.
Which in many ways is not ideal, unless you know what you are doing.
Or just buy an ETF like XCB.


----------



## gibor365 (Apr 1, 2011)

HaroldCrump said:


> Or just buy an ETF like XCB.


and what do you think about ZHY (8.4% yield) or maybe XRB?


----------



## FrugalTrader (Oct 13, 2008)

or if you want to go short term bond, check out Claymore's CBO.


----------



## humble_pie (Jun 7, 2009)

this is classic rosenspeak.

as he has been saying ever since he got back to toronto, he thinks equities are going down, therefore recommends equities that won't go down.

plus it would have helped readability of that blokkarosentext if it had been divided into paragraphs.


----------



## fatcat (Nov 11, 2009)

> and what do you think about ZHY (8.4% yield) or maybe XRB?


 i have 2 different high-yield funds phn280 and rbf496 which had been doing great but dropped in response to the recent turmoil

i think that high-yield is not the best place to go in an economy that is weakening

better to go with high-grade corporates (like phn340 which has been doing very well)


----------



## HaroldCrump (Jun 10, 2009)

gibor said:


> and what do you think about ZHY (8.4% yield) or maybe XRB?


These are all different beasts - XCB is Canadian investment grade corporate bonds, ZHY is a US high yield (junk) bond ETF and XRB are real return bonds.
They all have different risk profiles and different returns.
What is your objective? That will determine what is a better fit for you.


----------



## gibor365 (Apr 1, 2011)

HaroldCrump said:


> These are all different beasts - XCB is Canadian investment grade corporate bonds, ZHY is a US high yield (junk) bond ETF and XRB are real return bonds.
> They all have different risk profiles and different returns.
> What is your objective? That will determine what is a better fit for you.


My time horizon at keast 10-15 years, objective - to have something more secure (small growth or high dividends) if market going down


----------



## Belguy (May 24, 2010)

I was listening to Paul Krugman on CNN today. He states the obvious when he says that we are not in a 'normal' V-shaped recession. Rather, he calls this 'The Great Retraction' as compared with 'The Great Recession'. He thinks that it will take four or five more YEARS to get back to where we started with the markets.

In such a retraction, the U.S. is facing an almost permanent unemployment rate of around where we are now with many unemployed people becoming permanently unemployed.

As of now, the U.S. is in debt to China to the point where it owes every single Chinese man, woman and child $900 and climbing.

All in all, not a pretty picture.


----------



## HaroldCrump (Jun 10, 2009)

gibor said:


> My time horizon at keast 10-15 years, objective - to have something more secure (small growth or high dividends) if market going down


Growth and dividends are not features of bonds, at least not primarily.
For that you have to look towards stable dividend paying equities, such as the ones in XDV or any of the dividend mutual funds.
For bonds, you can split your bond allocation three-ways : XCB, XSB and JNK.
If you want to reduce your risk further, skip the JNK and just do XCB and XSB.
BTW, hold these in a registered account.


----------



## Abha (Jun 26, 2011)

Belguy said:


> I was listening to Paul Krugman on CNN today. He states the obvious when he says that we are not in a 'normal' V-shaped recession. Rather, he calls this 'The Great Retraction' as compared with 'The Great Recession'. He thinks that it will take four or five more YEARS to get back to where we started with the markets.
> 
> In such a retraction, the U.S. is facing an almost permanent unemployment rate of around where we are now with many unemployed people becoming permanently unemployed.
> 
> ...


But it's not the apocalypse either. I wasn't alive during the World War's but I would imagine coming back from those wars would have been a far more uncertain and tumultuous period for citizens.

Nobody knew if World War 3 was just around the corner, people were tired and confused and industries had to rev up again to meet demand.

Sure the developed countries are massively in the hole with regards to debt but there is no way we'll be stuck in this quagmire for more than a few quarters. Even if it takes 2 years, I think equities are the most promising of the bunch. Gold is a close second and bonds are a distant third for me.


----------



## Homerhomer (Oct 18, 2010)

Abha said:


> But it's not the apocalypse either. I wasn't alive during the World War's but I would imagine coming back from those wars would have been a far more uncertain and tumultuous period for citizens.
> 
> Nobody knew if World War 3 was just around the corner, people were tired and confused and industries had to rev up again to meet demand.
> 
> Sure the developed countries are massively in the hole with regards to debt but there is no way we'll be stuck in this quagmire for more than a few quarters. Even if it takes 2 years, I think equities are the most promising of the bunch. Gold is a close second and bonds are a distant third for me.


Japan is in the 21st year of retraction with no end in sight, are you really this sure that there is no way this will take no more than few quarters?


----------



## KaeJS (Sep 28, 2010)

If the America's go through 21 years of retraction... 

we will all be fucked.


----------



## HaroldCrump (Jun 10, 2009)

KaeJS said:


> If the America's go through 21 years of retraction...
> 
> we will all be fucked.


No, not really.
And by that if we mean Japan style perpetual "recession".
I don't think the Japs are f****d by any means.
It is a highly progressive society with all the modern comforts, high life expectancy, high education rates, low infant mortality rates, etc.
It is true that their net GDP growth is essentially negligible.
But then advanced capitalist countries like Japan cannot have 15% GDP growth rate like India, China, Brazil, etc.

It may not be the best place to invest from a returns perspective but that doesn't mean they are screwed as a society.
In fact, the Japanese are already invested in high growth rate societies via their large, multi-national corporations like Sony, Toyota and whatnot.

For the US, I don't think a sustained period of low growth rate, with low inflation, low interest rates, and steady % of employment level will be a particularly bad thing.


----------



## KaeJS (Sep 28, 2010)

As a country, things will still function.

But I was talking purely from an investing standpoint. Which, would ultimately be bad news.


----------



## Belguy (May 24, 2010)

Can you use the f***ed word on this forum even if that's what investors end up being should this turn out to be a lost decade??


----------



## larry81 (Nov 22, 2010)

dooommm anddd gloommmmmm


----------



## fatcat (Nov 11, 2009)

> No, not really.
> And by that if we mean Japan style perpetual "recession".
> I don't think the Japs are f****d by any means.
> It is a highly progressive society with all the modern comforts, high life expectancy, high education rates, low infant mortality rates, etc.
> ...


 harold, i get your point but have to add that the japanese are facing huge challenges that could cause them grief ...their demographics are very bad with a low birth rate, couple that with rampant xenophobia and you have real problems down the road .. their debt to gdp ratio is famously high and only sustained by the willingness of their people to carry their own debt at low rates, this could blow up ... all their foreign investments are dependent on a favorable exchange rate and then there is energy which is a real problem for them ... i do agree that japanese society is higly advanced and has persevered .. perhaps their sense of racial identity (and superiority) will carry them through ... i hope so as i appreciate their culture



> For the US, I don't think a sustained period of low growth rate, with low inflation, low interest rates, and steady % of employment level will be a particularly bad thing.


 sounds like the fifties .. i am ready for the fifties again


----------



## Abha (Jun 26, 2011)

Homerhomer said:


> Japan is in the 21st year of retraction with no end in sight, are you really this sure that there is no way this will take no more than few quarters?


I invest in companies, not countries. I know a handful of Japanese companies that made excellent investments over the past two decades.


----------



## Homerhomer (Oct 18, 2010)

Abha said:


> I invest in companies, not countries. I know a handful of Japanese companies that made excellent investments over the past two decades.


Unfortunately, while valuable this piece of info has absolutely no link to your previous post, nor my response to it. 

So let me ask again, how can you be so sure that this won't last more than few quarters while Japan's index has been loosing value for the last 21 years and quite frankly S&P 500 hasn't made any money for anyone who invested in the index 10 years ago and it has been below the level we are at right now for big chunk of the decade indicating the possibility of drifting down not just few quarters, but perhaps few, or more years.

Based on what you are so sure it's a short term bleep?


----------



## Abha (Jun 26, 2011)

Homerhomer said:


> Unfortunately, while valuable this piece of info has absolutely no link to your previous post, nor my response to it.
> 
> So let me ask again, how can you be so sure that this won't last more than few quarters while Japan's index has been loosing value for the last 21 years and quite frankly S&P 500 hasn't made any money for anyone who invested in the index 10 years ago and it has been below the level we are at right now for big chunk of the decade indicating the possibility of drifting down not just few quarters, but perhaps few, or more years.
> 
> Based on what you are so sure it's a short term bleep?


Well thats where my investment strategy diverges from the majority on this forum. 

While I have an account that has long term positions (ford, goldman sachs, apple, abbot labs, phillip morris and others) I am primarily a trader. 

From what I've gathered so far is that most of the people on this site are buy and holders and while its unfortunate that the indexes have not been too great on a 5-10 year perspective, that's how it goes. Modest Risk - Modest Reward.

I try to get in and out of hot sectors and it doesn't matter how bloody any one industry gets, there's always a hot play somewhere.

A few of my better trades this year have been Coinstar, Soda Streams and Coffee Holdings. I've also had some terrible picks where the value in those companies decimated anywhere from 10 - 70%. But that's the game I play where its high risk - high reward.

In this environment, there's tons of great opportunities and while I don't like when the market goes lower (charts are harder to figure out) there's always a good play somewhere. 

So it doesn't matter to me whether global economies contract or expand, because I'm not smart enough to figure out what will happen down the road, but based on past indicators I can tell you that I think we will be higher and my time frame is between 3 - 8 quarters (2 years). Again, thats my opinion and I can't support it anymore than anyone can with a bearish thesis.

As for a link, I suggest people start reading The Economist & The Financial Times. Both give a solid base of knowledge and are great for learning about new companies and ideas.


----------



## gibor365 (Apr 1, 2011)

Checked the highest dividend stocks within TSX 60 (excluding YLO) and they are:
ERF, PWT, BCE, SLF, TA, COS, ARX, POW, CM, BMO

Want to do more research about ERF...what do you thing about this stock?


----------



## Argonaut (Dec 7, 2010)

Not excited about any of those stocks at all. ERF has dropped 10% year to date, so its high yield wouldn't even cover that. You have to look at total return, not just the yield. Pick the better company if it means sacrificing 1-2% on the yield at that point in time. This is what I decided when I swapped BCE for Telus and it's been roses ever since. Would be an easy decision to swap CIBC for TD on that list as well.

Hell, lets just create a sample dividend portfolio for kicks.

T or BCE
TD
REI.UN or REF.UN
TRP or ENB or IPL.UN
CNR
FTS or EMA or CU

A mix of high yield and growing yield. I almost safely fell asleep for 40 years just writing down this portfolio. Look to the US to pick up a couple more blue chips.


----------



## gibor365 (Apr 1, 2011)

For US it's easier  IMHO the best 5: T, JNJ, ABT, PM, MO


----------



## Argonaut (Dec 7, 2010)

Why overlap JNJ/ABT and PM/MO?

Ignoring my Canadian portfolio, I counter with: 

KMP, ED, CVX, VZ, MCD


----------



## Abha (Jun 26, 2011)

Argonaut said:


> Why overlap JNJ/ABT and PM/MO?
> 
> Ignoring my Canadian portfolio, I counter with:
> 
> KMP, ED, CVX, VZ, MCD


PM and MO are two different beasts.

With MO you don't get the growth of PM but you do get a stake in their beer business which you can be assured they will spin out to shareholders eventually.

ABT is one of my favourite dividend plays because of their growth prospects. I think they are super underrated especially when people compare them to JNJ

Can't go wrong with any on the list though


----------



## kcowan (Jul 1, 2010)

CBS Sunday Morning had a piece on the top US companies sitting on $1.3 trillion in cash and cash equivalents. Their main point was that this is unprecedented and that they are waiting for a better outlook before redeploying any of this.

Should we all be doing the same thing?


----------



## fatcat (Nov 11, 2009)

> Not excited about any of those stocks at all. ERF has dropped 10% year to date, so its high yield wouldn't even cover that. You have to look at total return, not just the yield. Pick the better company if it means sacrificing 1-2% on the yield at that point in time. This is what I decided when I swapped BCE for Telus and it's been roses ever since. Would be an easy decision to swap CIBC for TD on that list as well.


 erf has dropped but so have most of its competitors and is a well-run company, it's rated more highly than most of its competitors and has been a cash cow in my aunts portfolio for a long time ... i like shaw better than telus even though they are slightly different companies (but diverging closer all the time) based simply on the fact that i deal with both companies and shaw is a much, much better run company

this a great idea argo ... i would like to see 3 dividend companies in these sectors: 

Financials: td, sun life
Energy: erf
Industrials: cnr, cp
Cons Disc
Info Tech
Cons Staples: kraft, j and j
Telecom: shaw
Utilities: fortis, emera
Healthcare
Materials
Metals


----------



## fatcat (Nov 11, 2009)

> CBS Sunday Morning had a piece on the top US companies sitting on $1.3 trillion in cash and cash equivalents. Their main point was that this is unprecedented and that they are waiting for a better outlook before redeploying any of this.
> 
> Should we all be doing the same thing?


 this is what keeps bernanke up at night ... it will be a spiral of restraint that leads us all down into a deep hole


----------



## ddkay (Nov 20, 2010)

Can someone explain the cash on the sidelines argument? Last I read most retained earnings are just held indefinitely in foreign low tax jurisdictions.


----------



## KaeJS (Sep 28, 2010)

I own the stocks below that are *bolded*



gibor said:


> Checked the highest dividend stocks within TSX 60 (excluding YLO) and they are:
> ERF, PWT, *BCE*, *SLF*, TA, COS, ARX, POW, CM, *BMO*
> Want to do more research about ERF...what do you thing about this stock?


Never even heard of ERF until now. (and sometimes that explains all you need to know!!!!!)



Argonaut said:


> Hell, lets just create a sample dividend portfolio for kicks.
> 
> T or *BCE
> *TD *(used to own)*
> ...


I would also agree with the purchase of TD, ENB, FTS, CPG, T, SJR.B


----------

