'Invest in what's scarce': Famed economist David Rosenberg explains how the average trader can supercharge returns in a tumultuous market

'Invest in what's scarce': Famed economist David Rosenberg explains how the average trader can supercharge returns in a tumultuous market

  • David Rosenberg, the chief economist and strategist at Gluskin Sheff, says investors should focus on scarcity value in the face of mounting economic and political uncertainty.
  • He believes the long bull market in bonds makes it harder to find good yields, while the weakening global outlook challenges growth.
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David Rosenberg, the chief economist and strategist for Gluskin Sheff, says he's using a simple philosophy in response to a very uncertain market: "look for what's scarce."

Rosenberg has been cautious about the bull market for years, so he's hunting carefully. And his track record is one that has to be taken seriously, as he was one of the first to warn in advance about the downturn that became the Great Recession.

In an exclusive interview with Business Insider, Rosenberg outlined his overall strategy, citing a "deficiency of yield and a deficiency of economic activity." He says both will benefit from a rise in scarcity value.

How to get yield

Rosenberg said he's encouraging investors to stay in the bond market, describing it as "a great place to be." But the 30-year bond bull market and low interest rates mean opportunities are scarce.


While some experts are favoring short-term bonds because it's hard to tell what direction is next for yields and rates, Rosenberg advises investors to stick with longer-term US bonds for their superior payouts. For the average investor, an ideal vehicle for this type of investment is the iShares 20+ Year Treasury Bond ETF.

Rosenberg is also advocating some defensive stock picks involving companies that aren't overly reliant on economic growth, such as utilities, real estate investment trusts, and some energy companies.

"I would be screening for companies that raised their dividends consistently in the past three years, with yields that are superior to what you get in the US Treasury curve and ones with low payout ratios," he said. "They're the ones with the greatest capacity to grow their dividends."

Rosenberg reiterated his view that corporate debt has turned into a "bubble" as a result of a decade of ultra-low interest rates.

For those stock traders looking to capitalize on this trend, Goldman Sachs recently revealed its list of high-dividend stocks, which it says will outperform as interest rates continue to fall. Here are the top 12 identified by bank.


Read more: Acclaimed short seller Jim Chanos explains why he's betting against a healthcare business loved by Warren Buffett

Where to get growth

Rosenberg thinks global economic growth is getting worse under threat from the US-China trade war, while the situation in the US is vulnerable.

"We have a deficiency of economic growth," he said. "The (Organization for Economic Co-operation and Development) leading indicator last month went down for the 19th month in a row. That hasn't happened since the 2008-09 economic downturn."

Domestically, he's concerned about weak signs from heavy industry and the housing market. Consumer spending has remained strong, but he's not sure it will last.

"We are in, in my opinion, an unprecedented period of economic and political uncertainty" that will hamper spending by consumers and businesses," Rosenberg said.


That's another reason he's urging investors to steer clear of dependence on the economy as they look for growth.

"Blue chip companies with strong balance sheets and stable cash flows are where you would be focused on" to execute that strategy, he continued. "You ought to own those companies with strong balance sheets and steady income streams that are non-cyclical in nature."

Goldman Sachs also has a "high-quality" index that it maintains, featuring companies with strong balance sheets. Here are the top 18 identified by bank.