Gold and bonds are all that's left

David Rosenberg, chief economist & strategist at Toronto-based investment manager Gluskin Sheff + Associates. Rosenberg has long been skeptical, to put it mildly, about the European Union's ability to keep its Tower of Babel from tumbling into recession. Rosenberg doesn't claim to know how this debt crisis will be resolved. "The problem with Italy is that it is too big to save and too big to fail given the systemic risks to the banking sector," he told clients in a research note on Wednesday. Instead, Rosenberg looking at what we do know – and investors would do well to peer over his shoulder. "What we can expect to see is continued heightened volatility in the equity market," Rosenberg wrote. "A focus on hedge funds with an eye towards being tactical and opportunistic is going to take on even more importance." And with the Federal Reserve expecting U.S. unemployment to be pushing 8% at the start of 2014 and near 7% a year later, Rosenberg suggested that interest rates would remain low for at least the next three years. Two areas that will prosper in that environment, he said, are gold and bonds, especially corporate bonds, which "offers the potential for equity-like returns in coming quarters without having to take on equity-like risk." Rosenberg remains a harsh critic of Europe: "It is apparent to me that there is no near-term resolution to the European sovereign debt and banking sector problems. This latest bailout attempt for Greece has proven to be little more than a charade."

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