GDP growth equals productivity growth plus population growth and, while both have been soft for 15 years, the two post-2000 cycles obviously have been very different from the 20th Century. They fail to address the long tail of people living well past past traditonal retirement age. Longevity—and its implications— was a primary topic at Mauldin's event in the afternoon.
Another factor is misguided monetary policy; the Fed hasn't changed its inflation target of 2 percent for 25 years. "Maybe it [inflation] is really 1 percent" in a technology-driven world where falling prices for tech products are increasing their share of total GDP, Rosenberg suggested.
Like a cat chasing its tail, the Fed's relentless pursuit of an elusive goal is fueling asset price inflation. Even though the central bank has raised rates five times since 2015, we're still in an easy money world and the 10-year Treasury is unlikely to rise above 3.25 percent.
That doesn't mean advisors should expect a Bernanke-Yellen clone. "I think [new Fed Chair Jerome] Powell is going to be more hawkish than people think," he said.
Ultimately, he thinks there will be a recession in 2019 that will be a direct or indirect result of the Fed's tightening cycle. Since World War II, there have been only three central banking tightening cycles—in 1953, 1983 and 1994—that have managed to avert recessions and achieve "soft landings," largely due to luck.
Many Wall Street strategists have applauded the policies of the Trump administration but Rosenberg isn't one of them. There is no evidence in terms of GDP growth that trade deficits are bad or good.
But if a government increases its own spending and cuts taxes to increase consumer spending, it's inevitable that imports will rise. Tax cuts are viable instruments to combat recessions but of little value this late in the cycle, Rosenberg said.
While waging war on the trade deficit straw men, there is the more serious issue of U.S. federal budget deficits, which are expected to rise from $550 billion to over $900 million this year. Never have deficits been that high except during periods of recession or war, he observed.
Nor was Rosenberg a fan of Treasury Secretary Steven Mnuchin, who declared at this year's Davos conference that the U.S. wanted a weaker dollar. The last Treasury secretary to do that was James Baker on October 18, 1987. Rosenberg began his Wall Street career the very next day.
U.S. debt is surging to record levels, from $33 trillion at its pre-crisis peak to the current level of $50 trillion. In the four years after the Great Recession, it was the federal government that was creating all the debt.
However, in recent years it has been corporations issuing debt, largely to buy back stock. Rosenberg didn't say it, but some CEOs are going to look very stupid it their shares fall substantially below repurchase levels.
Everybody says, "Cycles don't die of old age, but they do die," Rosenberg told attendees. In the next recession, federal budget deficits could rise to 8 percent of GDP, or near their levels in the Great Recession.