David Rosenberg Still Likes Corporate Bonds (Consuelo Mack Interview, 7/13/12)

David Rosenberg, chief economist and strategist at Toronto-based wealth management firm Gluskin Sheff (and former Chief North American Economist at Merrill Lynch), was interviewed by Consuelo Mack on July 13, 2012 on WealthTrack. He told her that corporate bonds are still attractive during this deleveraging period (watch his November 2011 interview). He's a fan of "staking a claim" in healthy balance sheets that have quality debt/equity and interest coverage ratios, and have debt maturity schedules locked-in. He also thinks high yield bonds that are already priced for a downturn are attractive as well.

On the stock market, Rosenberg thinks that "corporate earnings are at an inflection point," are "starting to contract," and "earnings estimates by analysts on Wall Street are still far too high". So, there's a risk that stocks could pull back in the near-term, which he thinks would then be a good buying opportunity. In June, Gary Shilling predicted that S&P EPS would fall to 80 from over 100, and the S&P would fall to 800 as a result (80 x 10 multiple). Rosenberg isn't calling for a recession yet, but he said we are "on the precipice" of a recession. And if the Bush tax cuts and spending programs (the fiscal cliff) expire on December 31, GDP could fall dramatically. Interesting, he said "normally the market corrects 20% during a recession." Didn't stocks fall 20% in a few weeks in 2011 after Standard & Poor's downgraded the U.S's credit rating? Will we see correction inflation of 30%-40% this time?

He also mentioned that his firm has been long Dollar stores (FDO, DLTR) recently. Smart move..! Hedge fund manager Bill Ackman invested in JC Penney (JCP). He should have invested in TJ Maxx (TJX). The chart after the video compares Family Dollar, Dollar Tree, JC Penney, and TJX Co. JCP crashed recently. Overall, David Rosenberg's strategy sounds good. Just keep an eye on Treasury yields and credit spreads. The 30-year fixed-rate mortgage average is trying to find a bottom. I also heard him say that the end-game could be that the eurozone breaks up. He covers everything.

Good call investing in Dollar stores...

source: StockCharts.com (JCP, TJX and Dollar Stores)

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