- Bond king Jeff Gundlach and famed economist David Rosenberg shared their pre-election predictions in a Monday webinar.
- Gundlach said he is predicting a Trump win, albeit with "far less conviction" than he did in 2016, while Rosenberg said under such a scenario, the House is almost certainly going to stay Democrat.
- Both of them believe that the economy would be "in tatters" without further fiscal stimulus.
- They also shared where investors can go for safety and growth in a post-election world.
- Visit Business Insider's homepage for more stories.
A little less than 24 hours before polls around the US opened for the historic election day, two market heavyweights — bond king Jeff Gundlach and famed economist David Rosenberg — made their pre-election predictions.
In a Monday webinar, Gundlach, who successfully predicted a Trump win in 2016, said he thinks that the incumbent president will win again.
"I think that the election is going to go to Donald Trump again. I've far less conviction than I did in 2016, I was virtually certain of it," said Gundlach, the CEO and chief investment officer of DoubleLine Capital.
"But I also think that whoever loses is going to throw a fit and contest the methods of voting in the election. I think it'll be close enough that it can be litigated if you will," he added. "And I think that people will be kind of really unhappy on one side and unfortunately I can easily see demonstrations, I can see further rioting and looting, particularly if Donald Trump wins."
While the polls seem to be indicating a Joe Biden win and a blue wave where the Democrats control the House and the Senate, Gundlach is skeptical.
"I don't think he's going to win. I really believe that the polls have gotten far less accurate, intentionally far less accurate as the years have gone by," he said. "And the polls are being used as momentum builders and kind of designed not to gauge opinion but to guide opinion."
If Gundlach's prediction against public opinion materializes again, Rosenberg believes that the House is going to stay Democrat, leading to a gridlock situation.
"That's almost ironclad," said the founder and chief economist of his eponymous economics consulting firm. He agrees with Gundlach in that the national polls could be inaccurate but is unsure as to the extent of the inaccuracy.
"It's hard to believe that Trump could win being down 10 points in the national polls," he said. "But one thing we all know from the last election, from every election, is that it's not about the national polls, it's how you're going to do at the state level. That's all that matters."
He continued: "The one thing we will have early tomorrow is we'll have Florida. Florida has already started counting the mail-in ballots. They will be early with their results. I have to think that if Trump doesn't take Florida, I think he's in some serious trouble, he needs Florida, he needs Florida more than Biden does."
Predictions aside, Rosenberg is not so sanguine about the impact of a divided government on the markets and the economy.
"I think it'd be far better for the markets if we have a clean sweep, either we have a red wave or a blue wave," he said, adding that while he understands that people are worried about the tax hikes that come with a blue wave, the concern is overblown.
"I don't think they're that crazy that they're going to start to raise taxes in this sort of environment, but maybe they'll come three or four years down the road," he said. "The one thing we do know is that Nancy Pelosi's $3.5 trillion package that was ready to go through the House of the Senate, that's coming right away."
Whether it's the Biden stimulus or Trump stimulus, Gundlach concurs that the economy would be devastated without the stimulus.
"It's already in kind of tatters but it would be a disaster," Gundlach said. "And of course when you use blunt instruments like this money spray that went on earlier this year and the next stimulus package, the effects for the economy are incredibly uneven across income spectra and across geographies.
He warned: "I think there's a lot of problems that people don't understand that you have, first you have the big tremor but then there are these aftershocks."
How investors can position for safety
With all the potential economic and pandemic-related problems facing investors in the post-election world, investors should consider hedges against both deflation and inflation, according to Gundlach.
"I hate long-term bonds…but I still think you're supposed to own some because you could get a deflationary environment, which you would need part of your portfolio to have that deflation hedge," he said. "As low as the 30-year yield is — about 1.6%, you could get a 30% capital gain on long-term Treasuries. And I also think you're supposed to own cash for the deflation case."
He added: "On the other side, I think you're supposed to own something that is an inflation hedge for the potential of monetization, which if you're a Bitcoin aficionado you can do that. I've been bullish on Bitcoin all year, I don't like Bitcoin, I don't invest in it, I really don't believe in it, but it's a great speculation vehicle for inflation."
To hedge against the risk of the Fed monetizing the debt, investors should also consider gold or something gold-like as "a significant portfolio holding," according to Gundlach.
"I think gold will probably go up very substantially looking forward a number of years," he said.
In an uncertain and COVID-ravaged world where inflation is hard to forecast but almost certainly coming, Rosenberg is also embracing Treasuries.
"I am not talking about owning Treasuries as a way to make a lot of money. I'm talking about it as a ballast in the portfolio as a way to mitigate risk," Rosenberg said. "What makes Treasuries so valuable in an uncertain world is the certainty of payment."
Where investors can look for growth
With their portfolios under protection, investors should be looking outside of the United States for the next five to ten years, Gundlach and Rosenberg shared the sentiment.
"I am very strongly convicted that the US dollar is going to go down on a multi-year forward-looking timeframe," Gundlach explained. "And with the dollar declining, that means that you're going to do better in other economies and so I think you're supposed to be looking at really non-US markets."
"For the very long term, I like India because it's a massive reform candidate, the demographics are extremely favorable," he added. "And I think that when the dollar really starts to weaken, you're going to see emerging markets broadly outperforming."
He is not favorable on Europe from an investment perspective: "You just have horrible demographics and the Eurozone is highly vulnerable to further Brexit type of activity ultimately. And I think that it's just not very well run, so I think you will have look to Asia, primarily."
Rosenberg shares a similar bullish sentiment on India and broader emerging markets, but he is particularly positive on China and Southeast Asia, which he believes are going to be high growth areas to invest in for the next decade.
"If you think China was a big ongoing political headline for the past two decades since they joined the WTO, you ain't seen nothing yet," he said. "Because we're 10 years away from China supplanting the US in purchasing power parity terms of being the largest economy in the world. That is not good news for the West."
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