Capital Markets Masterclass

Attendees of NICSA’s annual General Membership Meeting received a comprehensive overview focused on the sunny investment environment of today as well as clouds on the horizon.

Dr. David Kelly, Chief Global Strategist and Head of the Global Market Insights Strategy Team at J.P. Morgan, led the general session. “We are now in the 10thyear of an economic expansion,” he said. “This is the second-longest expansion of all the economic expansions since the American Civil War. If this expansion makes it to next summer, it will be the longest American expansion ever.”

Kelly said investors are increasingly haunted by the prospect of the bull market coming to an end. His solution? “You have to recognize where we are right now and take advantage of the opportunities there, but still make sure that you are prepared for a downturn,” he said.

The U.S. is in the midst of the tightest labor market in 50 years, and GDP growth has averaged 3 percent for the last three quarters. But Kelly said that rate is simply unsustainable. “Because we are tightening up immigration in a time when Baby Boomers are retiring in their millions, that is going to prevent us from having enough workers to grow faster,” he said.

Kelly also pointed out that the Federal Reserve is raising rates at what he considers a very moderate pace. “Eventually we will have a recession, and when we have a recession, the clamor is going to come out: ‘Please, we need significant interest rate cuts,’ but you cannot deliver significant interest rate cuts unless you have significant interest rates,” he said. “So the Federal Reserve is reloading its guns.”

Regarding the U.S. tariffs on Chinese imports, Kelly said a tariff is an idea twice cursed. “It curses the country that imposes the tariff and it curses the country upon whom the tariff is imposed,” he said.

Kelly predicts Trump will eventually settle on a trade deal. “But if there’s not, and for some reason we miscalculate and decide to have a bigger and bigger trade war, that’s one risk that may put the global economy in recession and put the U.S. in recession,” he said.

He also pointed to the midterms as a source of economic uncertainty. “I try to avoid politics, but I cannot avoid saying that I think populism is poison,” he said. “The most serious problem with populism is that it’s not serious; it’s all about how you feel and not how you think. It undermines democracy in the most insidious possible way.”

“I see this in, for example, Italy, where the voters put in a coalition for the Northern League, which is a far-right party, and the Five Star Movement, which is the far-left party,” he said. “The only thing they can agree on is boosting the deficit. Democracy depends on a thoughtful voting process where people actually understand the policies they’re voting for — not just the tribe they’re voting for.”





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