Turning to the U.S., Rosenberg said that no matter who wins the November election it will result in more infrastructure spending because both Hillary Clinton and Donald Trump have made it a priority. That would be good news for capital spending—machinery, cement, steel.
“And they’re both hawkish on defense policy, so aerospace and defense will be good places to be no matter who wins post-November,” he said.
Rosenberg’s favorite investment idea is Canadian banks. He noted they’re providing a 4 percent yield and are growing their dividends; are past the worst of the loan losses from the slowdown in the energy patch; U.S. hedge funds have record short positions on them; and they’re trading at low valuations on a historical basis. In addition, they’re very regulated, safe institutions, and he believes they potentially offer 3 percent to 4 percent annual price appreciation.
“Hedge funds had a winning short trade last year during the worst of the energy-related loan losses,” Rosenberg explained. “The problem is when you short a stock yielding 4 percent you’re going to have that negative carry. I think that trade is over. If those shorts close their positions you’ll see a big increase in stock prices. These banks normally trade at two times book value, but now are trading one-and-a-half times book.”
That said, he added, the fly in the ointment for Canadian banks is that the country’s residential real estate market is in bubble territory—especially in Toronto and Vancouver. That could fester into loan losses if the real estate market tumbles, which is why hedge funds continue to short Canadian banks.