America is in “a rolling depres- sion,” and stocks are “dancing to the tune of the Federal Reserve,”Bob Rodriguez, the legendary formerCEO of First Pacific Advisors who predicted the 2008-’09 financial meltdownand the current crisis, told InvestmentAdvisor in a phone interview.
In an email exchange after PresidentDonald Trump’s announcement of contracting COVID- 19, Rodriguez said:“Likely to hamper [Trump’s] ability tocampaign, [the illness] could increasethe odds of a [Joe] Biden win. Shouldthis occur, the stock market would likelyexperience more downside price risk. “Rodriguez continued: Trump’s“announcement will increase volatility and uncertainty within the financialmarkets. …The realization that no one istotally safe from the virus could lead toa more cautious attitude by many abouthow they socialize and reenter the work-place; that is, a more cautious attitudeabout reopening the economy,” he said.
However, in the phone interview,conducted in late September, Rodriguezargued that it will be 2024 or 2025before the economy is back to its pre-coronavirus Q4 2019 level.
Rodriguez, who retired from FPA in2016 and exited direct ownership ofequities that same year, has long predicted another devastating financial crisis stemming mainly from consumer andgovernment debt and the Fed’s “insanemonetary policy,” as he’s called it.
For the last few years, he has invested,
increasingly, in gold and collectibles,
a move that “insulates him from dam-
age,” he insists. In fact, his alternative
physical hard asset allocation represents
about 50% of his net worth.
At FPA for 25 years, Rodriguez chalkedup an outstanding record: The FPACapital Fund, which he managed from1984 to 2009, had an annualized returnof 14.2% during that span, accordingto Morningstar. The FPA New IncomeFund’s annualized return came to animpressive 8.8% under his management.
Here are highlights of our conversation:
Investment Advisor: What’s your fore-
cast for the U.S. economic recovery?
Bob Rodriguez: The economy isn’t recovering according to present expectations:recovery by 2022. There’s not a snowball’s chance in hell for that to happen.
I expect that in either Q4 or Q1 2021,or in combination, the economy will bedecelerating. Alarm bells will be goingoff at the end of the first quarter orearly in the second quarter. Regardlessof who’s president, we’re in for a prolonged period of economic stagnation —
limited growth. It will stretch to 2024or 2025 before we get back to the pre-COVID- 19 fourth-quarter 2019 level.
Is the country in a recession, or is it in
a depression?
I call it a rolling depression because eacharea of the economy gets hit hard, thenanother gets hit hard [and so on]. Therecoveries for each will be very transient. The areas now in depression arethe airlines, hospitals, restaurant industries. If a stimulus doesn’t come down[by late October], you’ll be watchingsmall businesses drop like flies. They’rebarely hanging on by their fingernails.
Where does the coronavirus enter
your thinking?
The economic collapse in February-March was attributed to the effects ofCOVID- 19. I would argue that COVID- 19was only the pin that pricked the incredible bubble we had. It was going to popanyway. It was just a matter of time.
PORTFOLIO PERSPECTIVES
By Jane Wollman Rusoff
Bob Rodriguez: America Is in a
‘Rolling Depression’
The legendary former FPA CEO predicts that economic recovery will
take three or more years.
TomZikas
