New Great Recession Coming in 3 Years

Fund manager, Bob Rodriquez, who forecast the global financial crisis, rails against the Fed, Dodd-Frank and the Affordable Care act and tells what he’s investing in now.

The day of reckoning will come within three years in a financial crisis at least as big and pernicious as The Great Recession, he told ThinkAdvisor in a recent, exclusive interview. The country is treading a tenuous path toward another disaster of massive proportions, according to Rodriguez.

Today, the investor’s stance is ever-cautious, as evidenced by his personal portfolio, which he discusses in the interview, as well as his five-prong formula for investing success and the essential research he relies upon.

Rodriguez continues to identify the horsefly in the ointment as the federal government’s ineffective monetary and fiscal policies, as he calls them, and the failure to attack critical structural issues.

For years now, he has warned of a looming crisis, even as the financial services industry has ignored, he argues, the enormously changed landscape since the global meltdown.

We’re living on borrowed time. When this market breaks, you’re going to see so many money managers and others washed out to sea who will never see land again. It will happen between now and 2018.

Why?

The federal government isn’t controlling their spending. For the past two years, 60% of investment returns have been a function of P/E expansion. Earnings growth is being driven by a fair amount of financial engineering on the part of the Federal Reserve and corporations. I’m sitting here for two years saying, “Hel-lo! Doesn’t anybody get this?”

For some time, I’ve hated the financial market. When the history of this period is written, the Fed presidents and those who have deployed quantitative easing will be glorified as great snake-oil marketers.

How would you characterize the economy right now?

Is this a vibrant economy? Absolutely not. I don’t know what people are smoking! No amount of monetary stimulus that’s driving up the illusion of stock prices is going to get back to the basic elements of improving fundamental elements in the economy. Debt and entitlements are growing at more than twice the rate of nominal GDP growth. It’s an absurdity!

When could that happen?

We’ll find out in approximately two or three years whether the Fed’s monetary policies have worked their magic. By that time the U.S. will have been on QE of some type for going on nine years.

You’ve been critical about the president’s Keynesian economic policy for years now.

In June 2009, I said that the one-time home credits and cash-for clunkers programs would only give a temporary blip to economic growth and would dissipate as if you’d never seen them. Now we’ve wasted five years and nearly $14 trillion in economic stimulus. Instead, we should have been providing tax-incentive programs for private corporations to rebuild and retrain our workforce, and a host of other things.

What’s your forecast for the stock market in 2015?

Lower! It will be easily 20% or 30% lower from what it is now.

What specifically do you see happening in the economy in 2015?

The unintended consequences of monetary policy and lack of fiscal resolve in this country, as well as in other countries, is only expanding the balloon. Nothing I was concerned about in 2009 has been addressed. GDP is not going to be a 3% growing number. It will be weaker again. The quality of the growth recovery in employment is questionable. That’s reflected in the fact that incomes are not really improving. Median income is still below where it was in 1999. We’re going along a road that’s not healthy. It will lead to sluggish GDP growth that will result in pressures on the system.

What’s the biggest threat to the market next year?

The realization that earnings expectations are far too optimistic. They’re not going to be up 7% to 10%. They’ll be more in line with nominal GDP.

What’s driving this?

The Federal Reserve, in its insane way, has forced people to go out on the risk curve. This is from people who couldn’t identify the world’s greatest bubble in real assets back in 2005 and 2006. Why on earth would anybody follow the directions of such an incompetent, misguided institution?
You don’t have much confidence in the Fed!

No, not in our fearless leaders in the Fed. By the way, little Timmy Geithner, back when he was president of the New York Fed, made comments that they were unaware of what was going on at the major New York banks and brokerage firms and how things were spinning out of control. But it was right there for everyone to see! At the time, I even identified the page they should be looking at in the 2007 Citibank 10-K [SEC filing].

What are your thoughts about the upcoming November elections and the presidential election of 2016?

They’re the most important elections in 80 years. I would like to see a revolt of nine to 10 senators shifting from Democrat to Republican/Independent. I guarantee that would send shock waves through many of the elites in Washington and set up for a major presidential outcome in 2016. Then the elected representatives may finally get around to dealing with what they should be dealing with — addressing out-of-control government spending and the complexity of our tax codes, which are starting to work in ways that aren’t positive. But if the shift is just in the four-to-six range, then it’s business as usual, and nothing will happen.

What’s your expectation if it’s the latter case?

The outcomes in our financial markets will get even more intense because nothing of a fiscal policy nature will be addressed until 2021 — and I believe then it will be too late.

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