Power Sheet – March 9, 2016

–Jim Rogers says the probability of a U.S. recession in the coming 12 months is 100%. He’s best known for calling – and betting on – the booms in commodities and emerging markets 20 years ago; he has also been a partner of George Soros. Now he argues that the wheels are coming off the U.S. economy – he cites flat payroll tax numbers – despite its fairly steady but slow growth, as the current expansion nears seven years in length. Weak or slowing economies in China, Japan, and Europe increase the downward pressure, he told Bloomberg. You think the dollar is strong now? He’s long dollars because he foresees a flight to safety as markets weaken globally.

-Similarly bearish for other reasons is the Bond King, Bill Gross. The problem, he says in his latest outlook letter, is that central bankers’ desperate attempts to stimulate their economies have gone too far by imposing negative interest rates. While low rates generally pump up asset values and energize economic activity through the wealth effect, he argues that negative rates do more damage than good. They clobber banks’ business models, endanger pension funds, and harm “all savers; households worldwide that saved/invested money for college, retirement or for medical bills.” He doesn’t offer hope: “Central bankers seem ever intent on going lower, ignorant in my view of the harm being done to a classical economic model that has driven prosperity – until it reached a negative interest rate dead end and could drive no more.”

-Yale’s insightful Vikram Mansharamani sees “bubbles bursting everywhere” and does not see the trend stopping. The author of an excellent book called Boombustology, he keeps an eye on these things. At the Global Financial Markets Forum in Abu Dhabi, he told CNBC he sees “a bubble bursting, I would argue, in Australian housing markets — that is beginning to crack; South Africa — the whole economy; Canada — housing and the economy; Brazil. We can keep going on and on.” The bubbles were inflated by the super-easy monetary policies that trouble Gross, and the bubbles’ bursting is contributing to deflation worldwide. Not a promising scenario for economic growth.

-Stock market maven Mark Hulbert reminded us in a commentary yesterday that Monday was the seventh anniversary of the current bull market’s start. His simple point: “There’s no way the stock market over the next seven years will produce a return anywhere as good as the last seven.” His more sobering point is that U.S. stocks will have a hard time even outpacing the growth of the economy. Corporate profits are already unusually high, and multiples are well above average; neither measure is likely to increase much further. His argument is hard to refute.

I think of these four observers and others like them as responsible realists. We can’t know how right or wrong they are, but experience says we had better think about what we’ll do if they’re right.

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