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US Economy | Munk Debates

EPISODE #5

US Economy

Be it resolved, the next recession is sooner than you think

Guests
David Rosenberg
Pippa Malmgren

About this episode

Fears of a world-wide recession are growing. Slow growth, trade disputes, high debt, and an inverted US yield curve have many in the financial sector predicting that the next economic slowdown is just around the corner. And record-low interest rates would leave government agencies with little room to stimulate the economy. Others believe this fear is overblown. Analysts have been predicting a recession for years, yet economic data suggests otherwise: a strong US economy, record-low unemployment, low energy prices, and decent corporate earnings indicate that one of the longest economic expansions in history as more room to run.

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Guests

David Rosenberg

We're heading into deflation at a time when global debt has never been as gargantuan it is right now

David Rosenberg

We're heading into deflation at a time when global debt has never been as gargantuan it is right now

Mr. Rosenberg is the Gluskin Sheff + Associates' Chief Economist & Strategist with a focus on providing a top-down perspective to the Firm’s investment process and Asset Mix Committee. Mr. Rosenberg received both a Bachelor of Arts and Masters of Arts degree in Economics from the University of Toronto. Prior to joining Gluskin Sheff in the spring of 2009, Mr. Rosenberg was Chief North American Economist at Merrill Lynch in New York for seven years, during which he was consistently ranked in the Institutional Investor All-Star analyst rankings. Prior thereto, he was Chief Economist and Strategist for Merrill Lynch Canada, based out of Toronto.

Mr. Rosenberg is also the author of Breakfast with Dave, a daily distillation of his economic and financial market insights.

Pippa Malmgren

It's hard to think of anything worse that we can throw at this thing called the world economy and yet here we are with all-time record highs

Pippa Malmgren

It's hard to think of anything worse that we can throw at this thing called the world economy and yet here we are with all-time record highs

Pippa Malmgren is a former Presidential advisor and a prominent public speaker who co-founded H Robotics, which manufactures AI-led, modular, commercial-use drones for a wide range of industries including mining, oil and gas, insurance, construction and public safety. Dr. Malmgren also founded the DRPM Group, which advises institutional investors worldwide on investment trends and is the platform for her public speaking. She is the author of three books, two of which are bestsellers: Geopolitics for Investors (2015), Signals: How Everyday Signs Help Us Navigate the World’s Turbulent Economy a crowd-funded Amazon best-seller (2016) and The Leadership LAB: Understanding Leadership in the 21st Century (2018) a bestseller which was named an FT Business Book of the Month, included on the CEO Goodreads list and winner of the 2019 Business Book of the Year Award.
 
She is a public speaker who has been the keynote for many international firms including Google, American Express, Ernst and Young, BCG, HSBC, Barclays and many others.
 

Show Notes

Read David Rosenberg’s op-ed in the Financial Post
 
David talks about the OECD composite leading indicators which have been negative for 20 consecutive months. Composite leading indicators (CLIs) are designed to anticipate turning points in economic activity relative to trend six to nine months ahead, and continue to anticipate stable below-trend growth momentum in the OECD area as a whole. 
 
Pippa refers to the beleaguered office space company WeWork. WeWork set up shared coworking spaces in cities around the globe, enjoying fast success and generating huge investment interest. However, after its failed IPO plans in 2019, the company’s valuation plunged by $40 billion, leading to the ousting of its CEO Adam Neumann and the layoffs of 6,000 employees. You can read all about the company’s rise and fall here.
 
Pippa talks about how monetary policy will change once the world goes digital. According to some reports, central banks in Europe, America, and China are looking at creating their own digital currencies as a way to challenge the rise of cryptocurrencies which have no mainstream regulatory authority.
 
Pippa talks about China's economy slowing down in recent years, which she ascribes to an increase in wages, collapse in competitiveness, and faulty quality control. the world's second-largest economy is expanding at its slowest rate since the early 1990’s. Some experts project that a 1 percentage point drop in Chinese growth would take 0.2 percentage points off total global growth.
 
David talks about capital spending as a recession indicator. Capital spending, or Capex, is when a company puts money towards investments and expenditures. Companies often reduce their spending when they are worried about an upcoming recession. Capex surged to 11% last year in the US, but is expected to grow by only 3.5% this year.
 
David points out that one stock in the S&P 500 did well during the Great Recession: Walmart. Here are some of the other public companies that appreciated in value from 2007-2009.