The following is excerpted from the November 22 edition of “Breakfast with Dave,” a publication from the Canadian research firm Gluskin Sheff:
- Fat-tail distribution curve: Need to be more diversified than normal across asset classes and currencies.
- Near-6% output gap: Deflation themes trump inflation themes. Preservation not just of capital, but of cash flows.
- Fed to keep rates near 0% through mid-2015: Interest-rate volatility minimized; long-short fixed-income strategies in vogue.
- $1.7 trillion in cash on corporate balance sheets. Corporate bonds remain a solid investment given prospective low default risks.
- Fed to replace Operation Twist with outright buying: Treasury yields to head even lower, making dividend yield in the equity market that much more alluring.
- Real interest rates to remain negative: This is a very powerful positive thrust for the precious metals complex.
- Stephen Harper around until 2015, Mark Carney around until January 2015, Barack Obama around until November 2016, Ben Bernanke around until January 2014: Very bullish for the Canadian dollar.
- Geopolitical tensions – Middle East, China transition, Greek default, U.S. fiscal cliff, high and rising youth unemployment rates and China-Japan rift: Exposure to raw materials is a good hedge against these recurring flare-ups.
- Looming political change in Japan: Bad for the yen, good for large-cap exporters.
- 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.
