David Rosenberg: this is the future investors will have to deal with
With the global economy grinding to a halt because of the COVID-19 pandemic, economic conditions can't get much worse than they already are, according to famed economist David Rosenberg, chief economic strategist at Rosenberg Research and Associates.
However, Rosenberg added that investors shouldn't expect to see a significant recovery anytime soon. He said that they should position their long-term portfolio to reflect an environment of long-term stagflation.
"We're going to be into a prolonged period of very soft economic growth. There is no rebound that is taking us back to where the economy was," he said. "The new normal is going to be very constrained."
Looking to the second quarter, Rosenberg said that U.S. gross domestic product (GDP) could fall 30%. He added that from there, economic growth could recover from those lows by 10% or 15%. However, there will still be a significant gap in economic activity, he said.
With economic activity expected to be constrained for the foreseeable future, Rosenberg said that some of the optimism reflected in equity markets might be misplaced.
"This is still a fundamental bear market," he said. "How could anybody look at you with a straight face and talk about the wonders of the equity market."
As to how investors should position themselves for the "new normal," Rosenberg said that he likes consumer staples, health care, and hard assets like real estate.
He added that he also likes gold and silver as an inflation hedge. "You want to start thinking about how cheap inflation is right now."
Looking at gold prices, Rosenberg said that it is only a matter of time before prices push to record highs. He added that he is bullish on gold as inflation keeps real rates in negative territory.
"Central banks are going to hold interest rates constant near zero. It tells me that real interest rates are going to go further and further into negative territory, and there is no better correlation between the gold price and real interest rates," he said.
As important as what investors put in their portfolios, Rosenberg said that it is also essential to look at what not to include. He said that he would stay away from energy, airline stocks and consumer discretionary companies.
"I'd be out of commercial real estate, out of retail, out of, and anything remotely touching, hospitality and leisure. I think it's going to be dead money for a long period of time," he said.