It may be sooner or later, but a recession is coming. Whether it comes before the 2020 election (and how it plays into the results) is anybody’s guess.

That was one of the themes at the Executives’ Club of Chicago’s 40th Annual Economic Outlook luncheon, held in the Hyatt Regency Chicago ballroom on January 22.

Among the speakers were journalist Terry Savage; Grant Thornton's Diane Swonk; Bob Froehlich, the retired vice chairman of Deutsche Asset Management; and DoubleLine Capital CEO Jeffrey Gundlach. The consensus among them was that a recession is coming, but maybe not this year.

Swonk said she is cautiously optimistic about the economy in 2020. "The stock market is not the economy. This is really important because the stock market is less representative of the economy than it has been in the past," she said, alluding to the 1970s.

She also referenced a tweet from President Trump in which he said he was heading to Davos, and bringing “hundreds of billions of dollars” back to the United States.

Hubris, in Swonk’s view, is "a very dangerous thing." Economic growth has been uneven, and Swonk insisted, "We need a more inclusive growth."

Immigration fell 42% last year, and she cited six months of contraction in the United States’ foreign-born workforce. "Millennials now make up the majority of the labor force," Swonk said.

She said inequality is now recognized as a serious systemic problem. "The middle class continues to be hollowed out," she warned. She cited waning CEO confidence and real pain in the economy, despite the thick skin of the indices.

Gundlach said that although he puts the chances of recession at 30% this year, structural problems are likely to surface over the next decade. "We have a debt-based economy which is completely unsustainable." He went on to say that as far as recent recessions, we haven't seen anything yet (re: 2021).

Gundlach said the growth in corporate debt has doubled since 2007, which is astonishing and that 53% of investment-grade bonds are “BBB.”

"The next recession is going to unleash a lot of problems," he said.

He said he liked that Fed Chairman Jerome Powell has rejected negative interest rates in the next recession.

"If we go to negative interest rates,” Gundlach said, “there would be nowhere for capital to go, and there would be large-scale destruction."

Gundlach believes we will see gains in the stock market this year, followed by it coming back down, as well as a “synchronized global expansion.” He feels certain the Fed will keep interest rates artificially lower by at least 200 basis points than they would be under normal conditions.

Changing Labor Force
Swonk noted the labor force is changing. "Almost all the heavy lifting is being done by millennial women," she said.

"We owe it to our youth to stop making economic decisions to boost short-term growth, but instead to make economic decisions to promote sustainability," she said.

Froehlich named four “landmark trends" he sees. The first is that the baby boomers are now outnumbered by millennials, who count 73 million to boomers’ 72 million. He cited a study saying "religion, patriotism and having children" are the most important core values to those 55 to 91 and the least important core values to those 18 to 38. 

While boomers and their predecessors aspired to a life of comfort and luxury (or wealth and ownership), Froehlich said, millennials and their successors aspire to "a sharing economy and subscription-based services." He said the new norm is that one does not need to own a car or even a bicycle or skateboard because of ride sharing and this new minimalism. "What you need to have is creditworthiness and non-ownership."

He also spoke about the "technological Cold War" between U.S. technology standards and Chinese tech standards. "I don't look for there to be any thawing of this war between the U.S. and China in the next decade at least."

Reverting back to his "Just Markets" call on January 7, Gundlach reiterated his assessment of Bernie Sanders's chances of winning the presidential nomination and election in 2020. Gundlach correctly called a Trump win in 2016.

"Would Bernie win the election?" he asked. "Well, that really depends on the economy. People would have to be more soured on capitalism and more welcoming of socialism as a broad concept."

Given a 30% likelihood of recession in Gundlach’s view, Donald Trump is most likely to retain the presidency. "Without a recession, I just don't see any of these Democrats having a chance," Gundlach said.

Lisa A. Ditkowsky, CFP, is the president of Pllush Capital Management Inc.