So says Gluskin Sheff economist David Rosenberg. Rosenberg, a longtime bear on the economy and the stock market, now says he is 99% sure we will have another recession by the end of next year.
He reasons that consumers have just begun clearing debt from their ledgers (see chart, right) and that as that deflationary process plays out, spending will slow, weighing on job growth. Adding to the pressure, government and the Federal Reserve are trying to wriggle out of the stimulus game.
“So we still have this credit contraction shock as it pertains to the broad consumer sector, and, going forward, no fiscal cushion,” Rosenberg writes in a note to clients Tuesday.
Rosenberg adds that as the extent of the economic slowdown becomes apparent, the stock market may finally sag. The S&P 500, recently about 6% below its 52-week high at 1285, could test last summer’s lows near 1000, he says.
If that sounds familiar, it’s because Rosenberg has been confidently predicting a stock market crash for more than a year. By the same token, he has been among the few who correctly called this year’s rally in Treasury bonds, and he was rare in calling for a deleveraging-led recession in 2007 at a time when few other economists believed economic gravity still prevailed in the United States.
Of course, the idea that anyone can be 99% sure of anything in economics is far fetched, as Rosenberg admits in saying his level of confidence in the recession call is “not much.”
But then, he argues, the same might be said of the odds that the economy is going to catch fire by itself anytime soon.
“Recession risks are as acute as they were a year ago,” says Rosenberg, “but with far less certainty that the Fed and Congress have another rabbit to pull out of the hat.”