The bears have come out of hibernation after a 9-year bull run, and they’re ornery and predicting a market crash in the near future, even as a Bank of America survey says that less than 20 percent of money managers think things are headed for a collision course.
Indeed, the bull-bear polarization is almost as strong as political polarization at this point, and getting a reading on the Dow seems to require a more potent crystal ball than anyone’s ever had.
This is what it’s looked like over the past five days.
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And over the past month:
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Warren Buffett would say this is all par for the course, and playing the stock market means investing in American business for the long haul—bumps in the road and all.
The Bank of America Merrill Lynch survey shows that most would agree, and there aren’t any signs to real capitulation.
Worldwide, fund managers are still pumping money into the market, with cash held by funds jumping in April to 5 percent, up from 4.6 percent, even when profit expectations and equity allocations were at an 18-month low.
For now, the survey concludes, bulls have been “silenced, not routed”. Now is the time for contrarian buys.
But there are some pretty big bears out there that disagree.
David Stockman, former Salomon Brothers investment banker and former Reagan White House budget director, says a worst-case scenario is imminent, and he is predicting an “epic monetary and fiscal [policy] collision, according to Time magazine. Related: The Leveraged Loan Bubble Could Be About To Burst
Topping his list of catastrophes are tax cuts that will put the federal budget deficit to the trillion-dollar range, and the Fed’s unwinding of its bond portfolio. The sell-off of bonds will lead to a major interest rate spike that will shock the market, while most remain in denial.
Likewise, Guggenheim Partners chairman Scott Minerd expects a disastrous collision course already next year, citing strong fiscal stimulus when the economy is at full unemployment—a situation that could force the Fed to be more aggressive in terms of interest rate hikes. While the Fed so far seems to be sticking to its plan to raise interest rates three times this year, Minerd expects a fourth hike, and four more in 2019.
Hedge fund manager Paul Tudor Jones is another bear who called the 1987 market crash, and is calling it again as soon as 2019, saying “We are replaying an age-old storyline of financial bubbles that has been played many times before.” The bogeyman for Tudor Jones? Again, strong economy at full unemployment, which he likens to a dangerous euphoria.
Ray Dalio, of Bridgewater Associates, the largest hedge fund in the world, is our next bear, calling a market crash in 2020 and calling our current period the “pre-bubble stage”. He puts the chance of recession before the next presidential election at 70 percent.
Contrarian investor John Hussman, of Hussman Investment Trust, was less forthcoming on the crystal ball predictions, and has refrained from putting any timeframe to a potential market disaster. But if and when this bubble bursts, he says, we can expect a market loss of around 60 percent as stock valuations are way too high, just like they were in the run-up to the dotcom crash.
By David Craggen for Safehaven.com
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