As unemployment crosses the 36.5 million mark and economic data indicates a more protracted recovery timeline, not to mention the guaranteed re-surfacing of the coronavirus in the fall, the Federal Reserve Chairman, Jerome Powell along with a handfull of billionaires begin to speak out about their outlook for the US economy.
Its a more sobering assessment than the markets hope for a "V" shaped recovery trajectory. When the Chairman of the Fed and a handful of uber-successful billionaire investors speak, the markets take notice and listen.
Stocks Fall as Fed’s Powell Says Outlook ‘Highly Uncertain’ was the Wall Street Journal's headline on wednesday. Jerome Powell's assessment was that the economic outlook for the US was "both highly uncertain and subject to significant downside risks" speaking at an event hosted by the Peterson Institute for International Economics. "The magnitude of the economic crisis facing the US is greater than any depression the US has faced since World War 2"
It so happend that several billionaires weighed in on the market this week as well.
Investors should prepare for a U.S. ‘economic depression,’ warns Kyle Bass. Bass became known for betting against the housing market prior to the 2008-2010 crisis. He thinks the economic recession could be 3x worse than the one we faced during that time and sees US GDP down 7-10% this coming year.
He sais the situation could be far worse for China. "China’s four largest banks in the last two years switched from huge dollar-based asset surpluses to now where they have dollar-based deficits across the board.”
There is a desperate shortage of U.S. dollars in the Chinese economy at a time when the Chinese Communist Party is beating back a political crisis in Hong Kong, a key conduit of foreign capital. He concludes: "The Hong Kong banks are completely insolvent,” he said. “Very much like U.S. banks were during the financial crisis, except it’s eight times worse.”
David Tepper, the billionaire founder of Appaloosa Management commented: ‘I would say it’s one of the most overvalued, maybe the second-most overvalued I’ve ever seen’ as of Tuesday, May 12th"
Investing legend Stanley Druckenmiller late Tuesday called stocks the most overvalued he’s seen in his long career and lamented an unattractive risk-reward picture. He says the risk-reward of investing in stocks has never been worse. The famed former hedge-fund manager, who with George Soros, famously broke the Bank of England by shorting the pound in 1992, says “the risk-reward for equity is maybe as bad as I’ve seen it in my career.”
Renowned investor and billionaire, Paul Tudor Jones is buying Bitcoin as a hedge against the inflation he sees coming from central bank money-printing, telling clients it reminds him of the role gold played in the 1970s. “The best profit-maximizing strategy is to own the fastest horse,” said Jones in a market outlook note he entitled ‘The Great Monetary Inflation.’
“If I am forced to forecast, my bet is it will be Bitcoin. I am not a hard-money nor a crypto nut,” he sais. “The most compelling argument for owning Bitcoin is the coming digitization of currency everywhere, accelerated by Covid-19.”
Speaking about Inflation he said: “It has happened globally with such speed that even a market veteran like myself was left speechless,”.
“We are witnessing the Great Monetary Inflation -- an unprecedented expansion of every form of money unlike anything the developed world has ever seen.”
On Market Efficiency
The markets, so they say, are "perfectly efficient" but what becomes clearer is that the markets reflect more of a "herd" behaviour that adjust to the "herds" perception of reality in a given moment in time. The "discrepancy" between an "innacurate view of "reality" and "actual reality" is what allows those investors who do not merely follow the herd to make money. Companies and markets can remain under-valued as well as over-valued for long periods of time, until "information" which has often been "known" for a period of time beforehand is acted upon. Once momentum to the up or down-side happens, instigated by large buyer(s) or seller(s), things happen. Perfectly "efficient", not. Eventually "efficient" - yes. The difference as Warren Buffet once said "can make me $80bn".
The future is uncertain. The chairman of the Fed and some of the great investors of our time are ALL saying this is a time to be cautious. While we are optimistic about the prospects of the market in the long term, there are more compelling arguments to the downside in the short-term than to the upside. A proven vaccine and effective anti-viral treatments will help turn the tide but these are yet to happen.