Gold looks good as insurance in a 2020 investment portfolio - David Rosenberg
(Kitco News) - Gold should be an integral component in a portfolio as investors look to protect themselves with hard assets from an impending economic slowdown, according to one market strategist.
David Rosenberg, chief economist and strategist at Rosenberg Research and Associates
Last month, in a telephone interview with Kitco News, David Rosenberg, chief economist and strategist at Rosenberg Research and Associates, said that gold is an attractive safe-haven asset as he sees the precious metal embarking on a secular bull market.
Rosenberg said that he is optimistic on gold and hard assets as he continues to see growing risks of an equity-market correction.
“Economic fundamentals have not been driving this equity market for a very long time,” he said. “This is very much a liquidly, momentum and sentiment-driven market. Let’s face facts -- the fundamentals are pretty poor.”
Although some of the data, specifically within the labor market, has helped to ease some economic fears, Rosenberg said that investors need to look beyond the headlines as some components don’t paint an optimistic picture.
He noted that outside of consumer consumption, there is little growth in the business side of the U.S. economy. This weak growth does not bode well for future economic growth, he said.
“If you take a look at 30% of GDP [gross domestic product], the U.S. economy has not been growing for some time,” he said. “The breadth of the economy is very poor.”
Looking at the odds of a recession in 2020, Rosenberg said that the threat is elevated as the Federal Reserve, in cutting rates three times last summer, has not been able to undo the damage of overtightening in 2018. He added that the trade war has also added to weak global growth.
Although the government is preparing to sign a phase-one trade deal with China on Jan. 15, Rosenberg said that it won’t be enough to boost economic growth.
Equating the U.S. economy to the health of a person, Rosenberg said that although the body is intact, there are many parts feeling some pain.
As to how investors can prepare themselves in 2020 and the years to come, Rosenberg said that he likes defensive assets like Treasuries; however, he added that investors should look at buying bonds at better levels.
“I like holding insurance policies,” he said. “I still see the global economy in an unstable equilibrium. I want to build an insurance policy against things going wrong.”
In his portfolio, Rosenberg said that he would include long-dated government bonds, corporate bonds that are counter-cyclical to the current market environment, and hard assets like gold and real estate.
“If you are taking a three- to five-year view, you would want to look at gold and other hard assets,” he said. “I think there is going to be a place to chip away at creating a hard-asset portfolio.”
As for equities, Rosenberg said that he would build a portfolio with high-quality companies that offer dividends and have net free cash flow and strong balance sheet.
“It’s not about quantity; it’s about quality. At this point, you only want the best ideas in your portfolio,” he said. “Even in the worst recession, there is something to buy, but at these valuations, you have to be extremely selective.”
Also, within the precious-metals market, Rosenberg said that in a rising price environment, it might be a good time to look at high-quality mid-tier miners.