March9,2020 BARRON’S 35
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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