Market Thinkers Predict 2020 Recession
By John Mauldin | Originally published May 9, 2018
People often ask what I do on my travels and what it’s like to sit in dinners with serious market thinkers.
So, let me tell you about my recent meetings with…
- Art Cashin, of UBS and CNBC fame, the world’s finest raconteur and senior statesman with exhaustive knowledge of all things markets. He was literally working on the exchange floor in the 1950s;
- Peter Boockvar, one of the best data slicer-dicers anywhere, who writes several letters every day covering markets and the latest economic data;
- Lakshman Achuthan, founder of the Economic Cycle Research Institute and the guru on economic cycles. Membership to his “club” costs well into six figures yearly. I went by to see him and some of his team before dinner;
- Randall (Randy) Forsyth, lead columnist at Barron’s who has ably filled the venerable Alan Abelson’s shoes;
- Barry Habib, who, according to Zillow, is the country’s top housing and mortgage analyst;
- Brent Donnelly, Forex maven extraordinaire; and
- New friend Jonathan Golub, Chief U.S. Equity Strategist at Credit Suisse.
When Will the Next U.S. Recession Start?
I like to ask questions when I can get a group like this together. First question, at least the one at the top of my mind: When will the next U.S. recession start?
The average prediction was for the second half of 2019—just in time for the 2020 U.S. elections. Golub was the outlier, being certain it will be 2022.
There were a couple of late 2018 guesses. Lakshman thinks the economy is beginning to cycle down but probably not enough for a recession this year.
My own vote is for late 2019, though I may turn more bullish as medium-term data comes in. I don’t foresee a recession beginning this year unless something new and serious happens.
Peter made an extraordinarily cogent comment that I’m going to use from now on: “We no longer have business cycles, we have credit cycles.” That means we have to pay even more attention to Federal Reserve policy.
Will they continue to raise rates and reduce their balance sheet, and thus shrink the global money supply?
The Fed Is Making a Policy Error
Most everyone at the table was unhappy to see the Fed reducing assets at the same time they are raising rates. Throwing two variables into the mix when we don’t understand either’s effects is too risky.
The Fed has put itself in a box. If it backs off, maybe it can postpone recession for a while but not forever. However, staying on course will risk inverting the yield curve. If a recession does begin this year, I will blame the Fed for this double-trouble strategy.
Forsyth and I both agreed, and a few others nodded along, that debt and deficits are the bigger long-term issue. Few see the connections between GDP and growth, and we are getting to the point where it will start being a drag.
Though we mostly agreed that this recovery is closer to its end than the middle or beginning, some think we could see an upside market blow-off first. It would be a final gasp, similar to what happened after the yield curve inverted ahead of the last two recessions.
Stock investors ignored it until they had no choice. And as I wrote before, we don’t have to see an inverted yield curve for there to be a recession.