Investment strategist Paulsen says recovery ‘looking normal’

If there were any worries about the sustainability of the economic recovery, it didn’t show in the crowd attending a lavish breakfast at the Four Seasons to listen to James Paulsen, chief investment strategist at Wells Capital Management.

Paulsen, who is based in Minneapolis, is known for his economic and market perspective newsletter and for the scribbled-on charts he displayed Friday during an hourlong presentation at the Wells Fargo 2014 Investment Outlook.

Also known for his bullish outlook, Paulsen said the “good news is the recovery is looking normal” and similar to recoveries in the early 1990s and early 2000s. He attributed some of the sustained rebound simply to confidence.

“You do sense a level of comfort,” Paulsen said. “It’s confidence that ultimately sets the seeds for the next recession. When you’re confident, you start doing really dumb stuff.”

He said the recovery has five or six years left to play out, while his expectation for U.S. growth is 3 percent moving forward.

“It took three full years to get where we are,” Paulsen said.

Paulsen told some 100 Wells Fargo employees and clients to prepare for a “mini-crisis” next year tied around the Federal Reserve pulling back on its quantitative easing. He said the Fed has been pumping $85 billion a month in “monetary juice” into the economy.

He said it “has not had much impact,” except there is $3.5 trillion in bank reserves that has not touched the economy. Paulsen said the “Fed should have stopped (quantitative easing) a while ago.”

Paulsen reasoned that every time the Fed pumps $85 billion into the economy, “they are screaming, we are scared and you should be to.”

He said economic recoveries have been slower now because population growth in the U.S. has downshifted. The downsizing is expected to worsen, Paulsen said.

The decline has nothing to do with debt or balance sheets and actually began in 1985, he said.

He expected U.S. labor force growth at 1 percent, down from 2 percent in the last decade. His reminder on the recovery was for “slow and steady” because of modest growth in employment, real estate and other sectors of the economy.

Contact reporter Chris Sieroty at csieroty@reviewjournal.com or 702-477-3893. Follow @sierotyfeatures on Twitter.