Thursday, December 17, 2009

I can handle (Rosenberg's) Truth!

In a special report entitled Year Ahead: Can You Handle the Truth, Gluskin Sheff chief economist & strategist David Rosenberg wrote [my emphasis]

Suffice it to say, we believe that the dominant focus will be on capital preservation and income orientation, whether that be in bonds, hybrids, hedge fund strategies, and a consistent focus on reliable dividend growth and dividend yield would seem to be in order. To reiterate, I see the range of outcomes in the financial markets and the economy to be extremely wide at the current time. But one conclusion I think we can agree on is the need to maintain defensive strategies and minimize volatility and downside risks as well as to focus on where the secular fundamentals are positive such, as in fixed-income and in equity sectors that lever off the commodity sector.

Rosenberg's observation before about the wide range of forecasts, is not new. I wrote about his comment about the huge range in the Fed's economic forecast in my post Get ready for Extremistan. As I understand it, Rosenberg's investment solution is to be defensive and preserve capital, while staying flexible enough to capitalize on opportunities as they arise.

Models for times of macroeconomic instability
Here is a better idea. The trend following principles of the Inflation-Deflation Timer model is the ideal tool for this kind of unstable environment. This class of model can identify changes in macro-economic expectations and investors can then profit from them.

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