The new normal is nonsense, says James Paulsen

Don't worry too much about the economy, says investment strategist James Paulsen. Things aren't so bad.

Worried about the economy? Don't be. At least that's what James Paulsen, chief investment strategist of Wells Capital Management, tells Fortune's Amy Feldman. The 54-year-old American thinks that things aren't that bad and that "our leaders should calm down a bit, and so should investors".

Paulsen, who oversees the investment of $325bn for the US bank, particularly disagrees with the idea of the new normal' that's popular with other high-profile managers such as Bill Gross.

The theory goes that high levels of private and public debt will dampen economic growth and therefore investor returns for the next few decades. Paulsen isn't buying it.

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"People say this is a new normal' that we've never been this weak before, ever - and I am suggesting that there is indeed a new normal, but it is already 25 years old. It started in the mid-80s and has nothing to do with debt, balance sheets, or savings."

So if debt isn't the problem what is? According to Paulsen, it is all about workers. "Throughout economic history, the rate of resource growth sets the speed limit of an economy. The US now has almost zero labour force growth." He notes that demographics meant that labour force growth began to slow in 1985.

"It's not that our economy is broken and China's isn't, and we should get more money supply, or lower interest rates, or cut taxes. None of that is going to affect the central average speed limit, which is the labour force."

Paulsen has analysed this recovery and says it matches recoveries from recessions in the early 90s and 2000s in terms of GDP, income and jobs. The slowing labour force growth means that the US won't get the dramatic 8% recoveries of years gone by, says Paulsen, but that's not necessarily a bad thing.

"Our speed limit is about 4%. The entire 1990s recovery, which we'll forever refer to as a boom, averaged a little over 3% growth. So we can have good times even though our recoveries have a very different character."

As a result Paulsen is bullish on the prospects of the US economy. He's confident it will grow 3% this year, despite the fact it's currently chugging along at around 2%. He also thinks America's main stock index, the S&P 500, will hit 1,500 from a level of around 1,350 today.

So should you start buying more stocks? Not so fast. As Paulsen admits himself, his constant optimism on the markets has earned him the label "perma-bull". In the early days of the 2008 crisis he downplayed its significance, arguing it wouldn't "be that bad". That doesn't mean he's wrong but it's worth bearing in mind.

James graduated from Keele University with a BA (Hons) in English literature and history, and has a NCTJ certificate in journalism.


After working as a freelance journalist in various Latin American countries, and a spell at ITV, James wrote for Television Business International and covered the European equity markets for the London bureau. 


James has travelled extensively in emerging markets, reporting for international energy magazines such as Oil and Gas Investor, and institutional publications such as the Commonwealth Business Environment Report. 


He is currently the managing editor of LatAm INVESTOR, the UK's only Latin American finance magazine.