Rosenberg's Seven Point Plan for Recession Investing

Here is something that may be of interest from David Rosenberg of Gluskin Sheff as reported by CNBC.

I lean on this a bit, unwilling and unable as I am to give investment advice on the particulars. And like most general advice, it is certainly not tailored to one's particulars, which is all important.

I should add that this is targeted to a recession. And if you believe we are in for a recession, this may work.  If we experience a more singular, unusual event, something other than recession, with features of a currency collapse, some portions of this portfolio will perform very badly.

Bonds and bond funds in particular tend to get decimated in times of rising interest rates and/or high inflation. Income is of little use unless the principal is protected.

And yet it is also good to remember that Japan lost its AAA rating in 2002, and its bonds continued on as rates fell. Is the US going to go the way of Japan? There are some very important differences, and after all, it is largely a policy choice. Choose deflation and austerity but without the safety nets for the people, and within ten years your house will burn.

It should be pointed out that finding legitimate investments in some of these general categories is no simple trick.

Personally I still like gold, and to a lesser extent silver, for a relatively safe portfolio of my own. At some point mining stocks with low debt and high dividends may be among the best investments. But I also like portfolio theory in its diversification feature. Never bet the ranch on any one thing unless you are uniquely positioned in terms of knowledge.

A more general theme that is not mentioned, but might be implied, is self-sufficiency, to the extent that such a thing is possible in our interconnected world. No man is an island, or can they be.

1) Focusing on yield, particularly on “high-quality corporates” though he allows for the inclusion of what others might call “junk” bonds from companies with “A-type” balance sheets and “BB-like yields.”

2) Stocks that provide reliable dividends including preferred shares.

3) Whether in stocks or bonds, focusing on companies that have low debt-to-equity ratios, high liquid asset ratios and good balance sheets without heavy debt.

4) Hard assets such as oil and gas royalties and real estate investment trusts, with a focus on income stream.

5) Sectors or companies that have “low fixed costs, high variable costs, high barriers to entry/some sort of oligopolistic features, a relatively high level of demand inelasticity” including utilities, consumer staples and health care.

6) Alternative assets that are “not reliant on rising equity markets and where volatility can be used to its advantage.”

7) Precious metals. Specifically, he says gold as compared to mining output, the Fed’s balance sheet and money supply all indicate that it is far from a bubble, and in fact could rise to $3,000 before it becomes overvalued.

Peter Warburton's financial disaster investment portfolio.

The search is on for the perfect hedge

What would be the ideal characteristics of such a numéraire? First, it would be in fixed physical supply. Second, it would be resistant to weather-related influences. Third, its ownership would be diffuse, rendering futile any attempt to restrict supply through a non-competitive structure. Fourth, it must be freely tradable. Fifth, there would be no futures or options markets attached to it.

Finally, I list some of the candidates, in no particular order. Each seems promising, yet none of them seems to me to satisfy fully all five of the requirements above.

Arable land with a dependable climate

Oil-refining capacity

Electricity generating capacity

Water-treatment capacity

Drinking water, bottled or piped

Coastal access, harbours and ports

Palladium/platinum/diamonds

Real estate in long-standing, distinctive locations

Antiques, fine art, stamps and coins

Commodities without futures and options markets

Could these be the winning investments of the early years of the 21st century?

I should add that I think that "Antiques, fine art, stamps and [collectible] coins" are rather awful investments in most times of distress. They do perform well in times of rising inflation without systemic disruption, but can be remarkably illiquid, and are probably the domain for the specialist collector for whom investment is a secondary concern.

For the most part collectibles are not suitable for 95+ percent of the people. Like most investments that can offer some examples with spectacular gains, the risks are commensurately high and heavily weighted to non-insiders. Bullion makes much more sense than collectible coins for a disaster hedge.

If one reads Adam Fergusson's book, When Money Dies, you can see that in the Weimar experience, people traded their antique furniture for turnips. I like liquidity, portability, and wide acceptance. Gold and silver may become the ultimate hedge if their ownership becomes more widespread and therefore more freely traded hand to hand, and they do not become official money standards, with prices and ownership terms set firmly by government.

Monetary Aggregates - Dude, Where's My Deflation? Better Yet, My Job, Savings, Economy?

Plenty of money printing, and therefore money supply growth, but little of it is from organic expansion. Printing money in low growth environments creates asset bubbles and a top down wealth effect for the upper crust. It also facilitates speculation and fuels soft frauds.

The US economy is a broken machine, burdened by an oversized financial sector and policy failures abounding in taxation, trade, and regulation.

Unfortunately the governance failures have their roots in crony capitalism and a variety of white collar crimes, disinformation campaigns, and public ignorance, so they are going to be difficult to surmount.

The recurrence of evil, whether it be in physical or economic privation, never fails to surprise one with its lack of originality, if not its sheer banality. It is rarely elegant or complex, but merely dull and ignorant, a brutish force, self-centered, animalistic, and cruel. Beneath the surface the madness lurks, in dark places and hardened hearts, awaiting its hour to rise once again.

"The receptivity of the masses to information is very limited, their intelligence is small, but their power of forgetting is enormous. In consequence of these facts, all effective propaganda must be limited to a very few points and must repeat these until the lowest member of the public understands what you want him to understand by your slogans...The law of selection justifies this incessant struggle, by allowing the survival of the fittest. Christianity is a rebellion against natural law, a protest against nature. Taken to its logical extreme, Christianity would mean the systematic cultivation of the human failure."

Adolf Hitler

Gold Daily and Silver Weekly Charts - La Douleur du Monde - Option Expiry Fizzle?

Although there were some efforts to push down price in the thin hours, the debt ceiling showdown has a bid under the metals, so most of the action was in capping the price to keep it manageable. So what next, declare victory and go home?

When Comex options expire, the holder receives an active long or short position in the contract the next day. And so we will have quite a few new futures contracts issued tomorrow given the number of 'in the money' calls.

The buyer of an option on a future contract is taking limited risk. Conversion to the actual futures contract itself, however, leaves the owner with substantial downside risk, so that holder often places a 'stop loss order'.

The Street crawlers can see those stops and their clustering and will often test that number and give the newbies a 'gut check' to see how serious they are.

But against that is the debt ceiling drama, so it might be quite quick unless there is some news being spread, even if it is only behind the scenes. There is quite a bit of that leakage going on in Washington these days.

The Dollar took a bit of a dive today, but is still above the critical support levels.

The actual mechanics of the debt ceiling timing are a bit more complex than many believe. Technically the Treasury can muddle along until August 15 I think given the need for new funding issuance, although the Credit Rating cartel has the power to rattle their pens and frighten everyone. But these things tend to involve anti-climactic moments and a dragging on. So timing is tough.

Certainly a deal or delay will be sought for Sunday evening before the Asian open. It is going to be a tough trade to decide how to go into the weekend.

SP 500 and NDX Futures Daily Charts - VIX Calm Despite Lies and Hysteria

I think the toughest trade might be to decide what to carry into the weekend.

I can't recall this amount of bare faced lying and misleadingly hysterical headlines in quite some time. Well, that's a currency and class war for you.