There was a time in the 20-teens when Mr. Minerd was an oracle but sometime after the covid crash, April - May 2020 we began to disagree with his calls for more and more stimulus and then with the murder of George Floyd and the ensuing riots we sort of lost track of what he was thinking.
Here's his latest via MarketWatch (via MSN) May 18:
The carnage playing out in the U.S. stock market on Wednesday is likely an amuse-bouche compared with the devastation on the menu for the bulls in the coming months and years, Guggenheim Partners Global Chief Investment Officer Scott Minerd told MarketWatch in an interview.
The prominent CIO on Wednesday said he envisioned the possibility of a dreadful summer and fall for stock-market investors — one in which the Nasdaq Composite Index eventually unravels, plunging 75% from its Nov. 19, 2021, peak (currently it’s down around 28%) and the S&P 500 tumbles 45% from its Jan. 3, 2022, peak (from which presently down 18%) as we head into July.
“That looks a lot like the collapse of the internet bubble,” Minerd said, referring to the implosion of technology stocks in 1999 and early 2000.
What’s driving Minerd’s pessimism? He fears that the Federal Reserve has made it abundantly clear that it is aiming to continue raising interest rates, despite the possibility that it could result in ruction in equity markets and elsewhere.
”What’s clear to me” is that “there is no market put, and I think we’re all waking up to that fact now,” Minerd said.
The CIO was alluding to the so-called Federal Reserve put option, which is shorthand for the belief the U.S. central bank will rush in to rescue tanking markets — an approach that has been denied by previous Fed chairs.
On Tuesday, Fed Chairman Jerome Powell also appeared to be trying to disabuse investors of the notion that the bank should be relied upon to throw investors a buoy as monetary-policy makers attempt to combat an outsize dose of inflation.
“Restoring price stability is an unconditional need. It is something we have to do,” Powell said in an interview Tuesday during the Wall Street Journal’s Future of Everything festival. “There could be some pain involved,” Powell added.
Minerd said that he believed the Fed will continue to raise rates “until they see a clear breaking of the inflation trend” and that “they are wiling to go above a neutral rate,” referring to a level of interest rates that neither stimulates nor restrains the economy.
Earlier this month, the Fed’s rate-setting committee raised the benchmark federal funds rate to a target ranging between 0.75% and 1%. It is expected to raise rates by at least 50 basis points at its June 14-15 gathering, as U.S. inflation stood at an 8.3% annual rate in April, according to the Labor Department, well above the Fed’s target rate of 2%.
The Guggenheim executive said that a May 13 gathering of former Federal Reserve policy makers and prominent economists, including John Taylor, John Cochrane and Michael D. Bordo, hosted by the Hoover Institution just after the Fed’s May meeting, caused him to take a more bearish stance on equities and the market as a whole....
....MUCH MORE
Now "the no Fed put" idea is at variance with our earlier check-in with Albert Edwards:
Société Générale's Albert Edwards: "The Fed Put is 3,000 on the S&P 500"
But with the S&P 500 futures at 3909 there isn't much conflict in their outlooks, for a while.
At least I hope it's a while. In December 2021 we posted a refresher on how fast major market indices can move: "Lest we forget, over five trading days in April 2000 the Nasdaq dropped 25%"
As a then-real-time look at our thinking on stimulus here's May 12, 2020:
Inflation and Equities
Paul's back.
From FT Alphaville:
The Zimbabwification of Wall St
Here’s one theory on why stock indices have performed so well these past few weeks, just as the real global economy has gone into a virus-induced tailspin.
Subconsciously or otherwise, investors are buying insurance against inflation.
Back in June 2008, when the ZSE All Share on the Zimbabwe Stock Exchange started to rise exponentially, some onlookers were confused. Mugabe was losing his marbles, there was death on the streets and ordinary people were in crisis. Business and the local economy reflected all that. So why should the share prices go up?.......MORE
Not yet but something to keep in mind.
In the U.S. the annualized decline in GDP is running about $4 trillion with the deficit stimulus approximately the same. So no net increase, yet.
Possibly more important than the numbers is who is raising the issue.
Mr. Murphy, in addition to founding FT Alphaville, has been watching the markets for longer than some of our readers have been alive.
And he knows more than most practitioners. In fact he could forget half of what he knows about markets and still know more than most practitioners.
So we'll take this heads-up seriously.
Emphasis added. The gist of the thinking is: stimulate with deficit spending to the point you roughly match the expected drop in GDP, then stop.
Then begin pulling back the deficit spending through higher taxes.
We didn't stop.
And we sure as hell didn't remove through taxes the excess sloshing around.
And the taxing? It is called inflation and it is one of the most regressive of all taxes.
Related, January 2022: "MMT Encourages Inflation Until Inflation Kicks In, Then Taxes Are Supposed To Drain the Excess Liquidity"
