Conference Presentation, Panel
US Overview: Can Growth Continue?
Milken InstitutePhilippa Thomas, Pippa, Ross, Bill, Adrian, Oliver, Tina Fordham, Tina Raja, Anastasios Economo
- Pippa anticipates continued confusion between inflation and deflation signals resulting from the divergence between the "live" and "deflationary" economies.
- Ross forecasts domestic growth of approximately 3.5%, adjusting to a range of 2.5% to 3% when accounting for foreign trade and energy drag.
- Ross predicts auto sales will reach 18 million units at an annual rate, surpassing pre-recession levels, while the consumer sector, leisure, and services are expected to grow rapidly.
- Ross estimates the new Asian Infrastructure Investment Bank will open with a $250 billion balance sheet, exceeding the World Bank's size on its first day, with capital flowing into real economy activities rather than sovereign debt.
- Oliver projects the U.S. consumer will face severely limited discretionary spending as retail becomes increasingly weak, while Oliver and Bill both predict a collapse in oil and commodity prices not currently priced into the market, leading to the loss of high-paying jobs.
- Oliver and Bill suggest the consumer experience economy will gain importance as individuals shift spending from goods to experiences due to compressed incomes, though Oliver expects the equity market faces significant downside risk.
- Oliver and Adrian hold divergent views on Federal Reserve timing, with Oliver expecting rate hikes as late as the middle of the next year, while Adrian forecasts December at the earliest or January, predicting the Fed will likely be wrong regarding the path.
- Bill forecasts the Treasury 10-year yield will rise from 2% to 3% over the next 24 months, while Ross suggests a terminal rate likely around 2.25% with a slow profile of increases.
- Bill predicts a recession will occur approximately 36 months after the first rate increase, placing the timeline around 2019.
- Ross expects geopolitical tensions between Washington and Beijing to be disruptive, with a potential government shutdown lasting one to two weeks due to debt ceiling brinkmanship.
- Ross forecasts an 85% likelihood of a significant terrorist attack on U.S. soil within the next 12 months, which could cause headline inflation to diverge further from targets via a lurch in oil prices.
- Oliver anticipates the U.S. dollar will appreciate due to continuous capital flows, making exports less competitive and creating headwinds for U.S. exporters to emerging markets, while regulatory changes curtailing bank lending could impact the formation of CLOs, which represent 70% of non-investment-grade corporate lending.
- Bill expects the mass affluent to shift from traded securities to hard assets as the search for yield drives consumption, while also noting the Chinese may view U.S. monetary policy as an inflation-driven debt default strategy, prompting investment in the Belt and Road initiative and a loss of the U.S. as a cheap manufacturing base.
- Ross notes mid-20s cash-on-cash returns for funds launched in summer 2007 and identifies CLOs as a potentially best-performing asset class, while Oliver expects CLOs and credit markets to face significant downturns from regulatory changes and market headwinds.
- Oliver highlights a credit trade in non-investment-grade U.S. corporate loans with default rates near all-time lows and attractive pricing, advising investment in entrepreneurial equity initiatives rather than bonds.
- Adrian expects actual economic growth is stronger than official statistics suggest due to understated innovation, while Oliver warns algorithms may decide the election outcome and that rising inequality will remain a key political factor.
- Bill predicts the presidential election outcome will have little economic impact, with Joe Biden on the brink of entering the race, while Oliver claims Hillary Clinton will not receive the nomination.
- Ross anticipates real estate in the private sector will rise about 15% per annum during the rate hike cycle, outperforming 85% of the time, while Bill notes that the low-income population will suffer more from rising living costs than those achieving record wealth gains.
- Oliver states that by the time aggregate market data confirms current signals, it will be too late to invest in the anticipated opportunities.
- Oliver forecasts regulatory changes and market headwinds will take the market "much, much lower," particularly affecting the CLO market, while Bill expects the "experiential economy" to become much more important.