Famed economist David Rosenberg told us 4 crucial trends won't change no matter how the elections go. Here's how to invest in them all.

  • Investors often focus on what's going to change in an election cycle, but economist David Rosenberg told Business Insider about four market underpinning that won't change no matter how the voting goes.
  • He also detailed the investments he expects to work based on those opportunities and challenges.
  • Rosenberg is famed for being one of the first to identify the housing market bubble before it burst in 2006, setting off the Global Financial Crisis.
  • Visit Business Insider's homepage for more stories.

Elections can change all sorts of things, but they can't change everything.

In unprecedented times, ahead of a long election campaign and the beginning of a vote-counting process that could stretch on much longer than usual, economist David Rosenberg told Business Insider about circumstances he sees as fundamental to the market and aren't on the ballot. He says they won't change no matter what happens next.

Rosenberg is the founder and chief economist and strategist at Rosenberg Research. Working at Merrill Lynch in the 2000s, he correctly identified the housing market bubble that would touch off the stock market's crash in 2007-08 as the Global Financial Crisis began.

Rosenberg is known for a bearish cast of mind and he's been outspoken about his doubts about the rally in stocks since March. It may not be surprising that some of his beliefs are pessimistic, but he sees investable aspects in all of them.

The rise of China

Rosenberg notes the irony that the country where the pandemic started is also the best-performing economy in the world in 2020, with a lot more room for economic stimulus than most other nations.

"They're the only country in the world that's going to have positive growth this year and likely set new highs for their GDP next year," he said of China. "Their stock market is about the cheapest in the world."

But his view on China isn't about valuations in the next year or two. It's about the growth that's still to come, and he feels that even rising trade tensions won't break apart the economic ties that are helping the country grow. 

"China's economic ascendancy is not changing no matter who wins the election, no matter what the composition of Congress is," he said. "Nothing is going to, I think, prevent China from supplanting the United States as the largest economic unit in the world over the next 10 years."

That combination of valuations and growth makes Chinese stocks appealing, and Rosenberg says that also extends to most of Southeast Asia because of those nations' links to the Chinese economy.

Demographic trouble

If China is set for long-term growth, Rosenberg says the US is in the opposite situation as an aging population suppresses its economy and keeps interest rates low for decades — and mounting debts will only add to that challenge.

"The aging demographic profile is not going to change," he said. "There's nothing the election is going to do … that's going to stop the population from aging and is going to stop the decay in the prime adult working age labor force participation rate."

That combination of low interest rates and limited growth has been driving investors into big tech stocks for years. Rosenberg characterizes them as great companies with strong fundamentals, but "egregiously overpriced" stocks.

For that reason he thinks a value-over-growth trade makes more sense, but at different valuations, his enthusiasm for tech would be greater.

The pandemic

The coronavirus pandemic started reshaping American life in March, and even if a vaccine becomes available next spring or summer, that's a relatively long way off. The effects of that are unknown. Rosenberg adds that even when COVID-19 is no longer a pressing concern, its effects are going to linger.

"What comes out of every shock is years of an elevated savings rate, and I think it will happen this time as well," he said. "We're going to have a lot more precautionary savings, especially in the household sector, than we had in the past."

While people might briefly flock to restaurants and entertainment destinations once it's safe to do that, Rosenberg doesn't think those sectors will get back to their 2019 levels. He says the US "became a nation of do-it-yourself-ers" in the pandemic with more people cooking their own food and making household repairs.

"We've also created a totally different culture," he said. "People are going to appreciate savings and will have cash on hand for the next crisis because I don't think any household wants to live through this again."

That could be troubling for more discretionary, travel-linked parts of the economy. Rosenberg is a believer in what he calls a "homebody economy" that includes both at-home entertainment and technological trends like cloud computing, digital currencies, and work-from-home themes. 

Stocks are overpriced

Rosenberg says a unified federal government is the best outcome for stocks because it's the only way a major economic stimulus package will get passed. But even if Democrats win full control of the government and pass a multi-trillion bill, it won't fix the historically high prices for stocks.

He notes that an overstretched market is more likely to crash than it is to trade in place until conditions change to make valuations look more reasonable. That underscores his view that there are greater opportunities in Chinese and Asian equities.

In the US, he suggests looking for companies with "utility-like characteristics," meaning steady performers that people can't live without and will stick with during down times.

"I want to focus on companies that sell what we need," he said. "A lot of brand-name consumer staple companies fit that bill."

Read more:

  • Buy these 13 stocks that are set to crush expectations and rally after their earnings, Jefferies says — including a top pick that could surge 79%
  • MORGAN STANLEY: How to trade the assets that have the most riding on Tuesday's elections — plus 5 investors can count on no matter who wins
  • Famed short-seller Andrew Left told us about his bullish positions in a magic-mushroom company and a COVID-19 test maker — and explained why he's now all-in on an online retailer he bet against barely a year ago

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