This week in Dallas, John Mauldin will kick off his Strategic Investment Conference with a star-studded group of speakers including Jim Grant, David Rosenberg, Richard Fisher, Lacy Hunt and many other luminaries.
Anyone wondering what's on his mind should know he is quite concerned about the next recession and how governments react to it. That was his focus when he spoke at the 7th Annual Financial Advisor Magazine's Inside Retirement conference in Dallas, Texas, on May 6.
Mauldin delivered a sobering description of what will cause the next recession in the United States. Today, the Treasury bond market does not have an inverted yield curve, a popular indicator of future recessions. "We're not going to get that (short-term interest rates rising above long-term interest rates) at today’s artificially low rates." An inverted yield curve, he explained, is not the cause of recession anyway. “I don’t see anything indigenous in the United States that says we are going to have a recession this year or even next year.”
Mauldin also addressed the socio-psychological and political aspects in our nation that will play a major role in the next serious recession. “We didn’t see the coming psychological shift,” he said. Mauldin spoke of a 10-day immersion course called “The Singularity” that he highly recommends to everyone who can take it.
“The Singularity is Near” is a 2006 book by futurist Ray Kurzweil. Its thesis centers on how technology and artificial intelligence will surpass human intelligence by 2045. Since the publishing of the book, special Singularity “colleges,” “universities” and “immersion courses” are proliferating. Experts are getting a lot of mileage out of a modern-day Orwellian portrait of the future—only George Orwell’s “1984” is today’s 2045. Dramatic technological will accelerate and destabilize an ever-evolving workforce.
Psychological shifts among the generations are encouraging political revolt and, for some, economic decline at the same time as lifespans are lengthening. The combination is a formula for major trouble. “Millennials are dropping out of the workforce at a rate we’ve never seen in history,” said Mauldin. Speaking of May 6th employment numbers, “352,000 people 25-54 years old dropped out of the work force,” he added.
Baby Boomers are taking jobs from younger generations. “We’re not hanging up our spurs,” said the 66-year-old Texan. “We’re having too much fun!”
But not everyone is having a ball. “Peggy Noonan hit the ball out of the park yesterday,” said Mauldin, paying homage to former Reagan speech writer peggy Noonan, another headline speaker at the Inside Retirement conference. “It is the protected class versus the unprotected class,” he said, referring to Noonan's explanation of the appeal of Donald Trump to Americans who have been passed by in a Darwinian economy.
Mauldin said that there is a mentality of the wealthy in the United States: “We’ve got money; we can get out of the regulations.” Mauldin echoed Noonan's belief that Trump is basically a non-partisan aberration.
Negative Interest Rates In The U.S.
“The velocity of money will be dropping because that’s going to take us to negative rates,” Mauldin said. “It’s American businesses that recover; it’s not a result of Fed policy,” he said. “The Federal Reserve is like 0 for 300.”
Central banks "are religious in their beliefs that consumption is the driver of the economy.” He noted that the U.S. Fed's belief in the expansion of debt through a variety of mechanisms would come back to haunt the economy. “We know that debt is a drag on growth,” said Mauldin. “Our growth, at best, is going to be about 1.5 percent over the next 10 years.”
Mauldin believes that by the time the next recession arrives, the Federal deficit will be $1.5 trillion, and he predicts that the Federal deficit does not get below $1 trillion for the next 10 years. “The shift that’s happening today is going to be even more profound in 2020 to 2024,” said Mauldin.
Global Debt Bubble And Currency Wars
“Emerging market are going to be tied to another problem—currency wars,” said Mauldin. He said that these currency wars are going to “roil things.”
The fallout will be far-reaching. “People in the U.S. and Europe are going to get very angry,” he said. “The bond bubble is not over. Get used to it.”
The ending won't be pretty. “There is nothing we can do short of a radical restructuring of debt,” he said. “The concept of a ‘global debt Jubilee’ by 2020 is not that far-fetched.”