By Jonathan Burton, MarketWatch
David Rosenberg is a checks-and-balances type of market strategist. He checks Mr. Market’s current mood against the reality of economic data and history, and strives to keep investors balanced as Wall Street’s bulls and bears tug at our emotions and wallets.
Rosenberg is president, chief economist and strategist of Rosenberg Research & Associates , the Toronto-based firm he founded in 2019 after serving in a similar capacity at Gluskin Sheff and Merrill Lynch.
Rosenberg’s respected “Breakfast with Dave” newsletter is a daily must-read for investors who understand that managing portfolio risk smartly can bring the greatest long-term reward. Seasoned pros know that with investing, what you keep ultimately matters more than what you make, so situational awareness is key. As Rosenberg often says: “Forewarned is forearmed.”
Now, with the coronavirus pandemic surging in the U.S. and Europe and a vaccine in sight, Rosenberg is cautiously optimistic about the prospects for the U.S. stock market and the economy in 2021.
In this recent telephone interview, which has been edited for length and clarity, Rosenberg tagged market sectors he likes, explained why he’d be a buyer of U.S. Treasurys and gold, dissected the U.S. election outcome, and cautioned investors not to get too excited about the so-called Great Rotation to value stocks from growth stocks.
The Lamb Brothers
MarketWatch: Many market strategists see the promise for a coronavirus vaccine within months as a fast track to the post-pandemic recovery. Do you agree?
Rosenberg: There are all sorts of issues to take into account. We have to assume there won’t be a mutation of the virus. It’s one thing to make 40,000 doses and another to make a billion doses. Then there are constraints around transport and storage. We’ll wait and see as to what’s going to be happening in the next round of tests and what else is going to happen in terms of therapeutics. But the point is this: With a vaccine that’s proven at such a high efficacy rate, people will go to concerts and restaurants; people will fly again for leisure. It’s hard to say as to whether those things will go back 100%, but for a lot of people this will be a game changer. There’s no reason why with a safe vaccine that you wouldn’t go back to the office. What I’m trying to convey here is the economics of fear. The less fearful people are, the more they’re willing to engage in the economy.
‘If inoculations start in the first quarter of 2021, we’re going to get a huge boom in the second quarter.’
I cater to portfolio managers and CIOs (chief investment officers) and people who manage risk for a living. Risk means examining the extent to which probabilities are changing over time. Here’s the situation. I had a forecast where my base case was, at best, a second-half-of-2021 story. If inoculations start in the first quarter of 2021, we’re going to get a huge boom in the second quarter.
Anything that can take COVID away is going to cause a change in behavior. It probably doesn’t take us back to where we were but might go back to a large extent of where we were. A lot of secular changes have taken place during this pandemic. A significant number of people feel comfortable and productive working from home. A growing number of employers are going to let people work from home. People are saying they believe they are more productive. This does suggest to me that the last thing that’s going to come back, even if we return to some semblance of normalcy, is office real estate. There’s going to be less need for office real estate and less inter-city travel.
MarketWatch: How would this affect the work-at-home stocks and an investment theme that has dominated 2020?
Rosenberg: The work-at-home theme is durable but the work-at-home stocks got way overpriced. The embedded growth estimates in these companies was never realistic as far as I was concerned. At some point they’ll get back to some reasonable valuation, and once they do, these will be growth companies with utility-like characteristics that you want to own. One thing to keep in mind about Zoom /zigman2/quotes/211319643/composite ZM +3.06% is that there are competitors out there. It’s not like Apple or Microsoft. Those mega-cap tech stocks truly trade like they are utility-like with limited competition.
In the market and the economy, you have to examine everything at the margins. In this period of stay-at-home and work-at-home, we all became cooks, for example. What flew off the shelves in the past eight months? Cookbooks, cooking utensils, small appliances. So while you will again go out to eat, you will not go out to eat as much because you learned how to cook.
One of the silver linings of the pandemic is how we became a much more self-reliant economy. We can do things we never thought we could. Take a look at sewing machines, bread makers, everything related to rewiring your home to become your office, remodeling your home, your backyard. A lot more people redid their backyards as a form of vacation property. Why did the homebuilding sector go up so much? People are buying second homes. A lot of people were saying our new vacation property is going to be a second home. It doesn’t mean we’re not going to vacation again, but people bought cars and minivans and trailers because, at the margin, the future will be traveling through the U.S. as opposed to flying somewhere.
People are still going to be flocking to the airports to travel, but at the margin, people have already sunk their money into their house, so they’re not going to go downtown. People bought Peloton bikes; they’re not going to renew their gym memberships. Gardening supplies is a growth industry because people are looking at the future and the security of food supply became very important. Is that going away because of a vaccine? I don’t think so.
‘The future will be “buy what you need, not what you want.” ’