Investors are repeating a big mistake they made before the 2008 crash and financial crisis, top economist says

• David Rosenberg said he was seeing the same investor complacency as before the 2008 crash.
• The veteran economist said the US economy would suffer a recession within the next few quarters.

David Rosenberg just issued a grave caution to investors, saying their complacency reminded him of the lead-up to the housing crash and financial crisis of 2008.

Most of Wall Street now anticipates a soft landing, where the Federal Reserve succeeds in crushing inflation without tanking the economy or causing unemployment to spike. There was a similar mood in 2007, when "the consensus and many market participants mistakenly assumed the recession would never come," Rosenberg wrote in a memo titled "2007 Redux" this week.

The veteran economist, who's the president of Rosenberg Research, drew several parallels between the two periods and underscored why he was convinced there was trouble ahead. He noted that stocks and homes were pricier today relative to incomes and profits than at the peak of the mid-2000s bubbles. He added that credit-card and auto-loan delinquencies were on the rise, and there were dangerous amounts of debt in the shadow-banking sector.

Rosenberg underscored that the collapse of New Century Financial and Bear Stearns in 2007 were shrugged off as isolated and contained incidents — similar to how the flurry of bank failures this spring is widely viewed. And the current strength of several economic indicators could be misleading, he said, as many of them only capitulated eight months into the 2008 recession.

The former chief North American economist at Merrill Lynch pointed out that consumer demand was shored up by government spending in the mid-2000s and argued that pandemic stimulus had had the same effect. The Fed has also hiked interest rates more aggressively over the last 18 months than it did in the mid-2000s, and the central bank's rate cuts in the summer of 2007 weren't enough to save the economy, he said.

Rosenberg said that back then, investors fell "hook, line, and sinker" for the narrative that the boom-bust cycle was history and a "new era" was underway. He said history was repeating itself, and the US economy was headed for a slump that most people didn't see coming.

"I am willing to acknowledge that the recession has been delayed. But it has not been derailed," he wrote. "This recession will come in the next few quarters, not the next few years," he continued, predicting a surge in job losses and loan defaults, faster disinflation, and a new bull market in Treasurys.

Rosenberg's latest warning won't surprise his close followers. He has previously compared the current environment to the dot-com and housing bubbles and likened the fierce pushback he's faced to the harsh dismissals he's weathered in the past before ultimately being proven right.

"I'm bloodied but unbowed, and not willing to surrender to the legion of new 'new era' advocates," he said.