Barron\'s - 09.03.2020

(National Geographic (Little) Kids) #1

March9,2020 BARRON’S 35


BEST ADVICE


One promising corner of the market is the


oil patch, specifically midstream master


limited partnerships.


past skepticism aside, she has built a


5% position in the yellow metal.


Where’s the evidence of a reces-


sion? The 10-year to three-month


Treasury yield curve has inverted


three times in less than a year,


Rosenau notes; over the past 30


years, inverted curves have predicted


recessions 80% of the time. And


spreads between CCC- and BB-rated


bonds are at a historically elevated


844 basis points (8.44%), another


signal that investors are worried


about the economy.


But haven’t U.S. companies contin-


ued to post strong earnings? Rosenau


believes they’ve used cheap money to


mask their shaky health: By buying


back shares en masse, they’ve


propped up earnings per share. On


an overall basis, earnings have been


contracting, she says.


Economically sensitive cyclical


stocks, like industrials and financials,


are well off their cycle peaks, she says,


adding, “The underbelly of the market


has been pretty sickly.”


One promising corner of the mar-


ket is the oil patch, specifically mid-


stream master limited partnerships.


MLPs’ structure combines the tax


benefits of a partnership with the li-


quidity of stocks. Midstream MLPs—


those related to the transport, storage,


and processing of fuels—are cheap


because investors haven’t forgiven


them for slashing distributions from


2016 to 2018.


Names likeEnterprise Products


Partners(ticker: EPD) andMagellan


Midstream Partners(MMP) are


pivoting away from capital spending


and using their healthy free cash flow


to generate sustainable, growing


yields and buy back shares, Rosenau


says. Enterprise’s and Magellan’s for-


ward dividend yields are 7.3% and


7.24%, respectively.


Rosenau’s argument for gold, mean-


while, goes like this: The Federal Re-


serve is likely to continue printing


money, which should drive demand for


a physical inflation hedge. Central


bankers are hip to gold—2019 was the


second-highest level of purchases of


gold by 15 central banks in the past 50


years. “We’re in the early innings of a


secular bull market in gold,” she says.


Rather than buying physical gold,


look at gold-mining companies, which


are consolidating because they’ve de-


cided it’s cheaper to buy capacity than


to build it, Rosenau advises.


Rosenau has also found gems in


unexpected quarters. She has been a


fan of select names in the local broad-


casting business for the past year and


a half. Firms have been consolidating


amid regulatory changes and competi-


tion from online rivals for news and


entertainment. And political advertis-


ing is a brisk tailwind right now, she


says. Rosenau declined to name her


holdings, butNexstar Media Group


(NXST) shares are up 34% over the


past year.


Ultimately, this period of market


turbulence will bring stock prices back


into line with their fundamentals, she


says. That means reasonably priced


stocks will no longer be a rarity.


On the bond front, Rosenau owns


short duration, high-quality bills,


along with high-quality municipal


bonds and some high-grade corpo-


rates. This isn’t the first time Rosenau


has amassed big cash positions. “It


happened prior to 2000 and 2008,”


she says. “And I have the willies now


like I did then.”B


“This market


could go down


between 15%


and 20% from


its high. This


is a global


recession.”


Pamela Rosenau


Facing Up


To Recession


Realities


HighTower Advisors’ Pamela Rosenau has been


pessimistic and held 20% in cash for over a year


By STEVE GARMHAUSEN


E


ven amid the quickly


evolving coronavirus epi-


demic, Wall Street prog-


nosticators have been


hesitant to utter the “R”


word. But Pamela


Rosenau, chief equity


market strategist at advisory firm


HighTower, is undeterred.


“This market could go down be-


tween 15% and 20% from its high,”


says the Aspen, Colo.–based Rosenau,


who has held a big cash position for


more than a year amid concerns about


the market. “This is a global recession.”


Conviction, of course, is not the


same as accuracy. Recessions don’t


start with the ring of a bell—their


inception dates become clear only in


hindsight. Still, Wall Street’s outlook


is growing unmistakably darker.


Goldman Sachs, while admittedly


more pessimistic than most, now sees


0% earnings growth for U.S. compa-


nies in 2020. And Moody’s chief


economist Mark Zandi recently told


theBarron’sRoundtable that the


bond market was signaling a global


recession.


Rosenau, who, in addition to her


equity strategist role, manages $1.2


billion for 242 client households, says


it’s time to head for master limited


partnerships, select opportunistic non-


Benedict Evanscyclical stocks—and gold. Putting her

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