They ought to know. To hear some of the financial world’s smartest folks, today’s buoyant times are numbered. Hey, they’ve been through it before. And they know the odds are in favor of a skid.
Some day, maybe next year, maybe in 2020, the economy will take a swan dive and the market will take the plunge with it. This is as inevitable as getting a cold: There are some germs lurking that eventually will make you sniffle, cough and feel sorry for yourself. The same goes with the economy and the stock market.
Financial advisor Ben Reppond, head of Reppond Investments, has collected a clutch of recent bearish statements from these leading lights. Their consensus is that the bad times will arrive in 2020. Here are their baleful takes.
Ben Bernanke, former chair of the Federal Reserve. “In 2020, Wile E. Coyote is going to go off the cliff and look down.”
Speaking at the American Enterprise Institute in June, Bernanke criticized the recent stimulus of the tax cut, which risks overheating the economy, leading the Fed to slam on the brakes to keep inflation in check.
Bernanke has seen Washington bungle the economy before. He recalled how, in 2013 during the fiscal cliff standoff between congressional Republicans and President Barack Obama, the result was to cut spending and let tax cuts expire. This stalled the recovery, he said. “I begged Congress” not to do what it did, he recalled.
Alan Greenspan, also former head of the Fed. “There are two bubbles: a stock market bubble and a bond market bubble.”
His biggest worry is the bond market, which he fears rising inflation will smash, with dire consequences. He made these remarks in January, on Bloomberg Television. Since then, the bond market is indeed in negative territory, although its fall hasn’t been precipitous. Inflation has nudged up, yet at a thus-far tame pace. The big worry is an inverted yield curve, where the two-year Treasury yields more than the 10-year, an infallible portent of recession.
The burgeoning national debt and an ever-mounting budget deficit worry him. “We are dealing with a fiscally unstable long-term outlook in which inflation will take hold,” he warned.
Scott Minerd, Guggenheim Partners chief investment officer. The market “is on a collision course with disaster” and the catastrophe will hit in late 2019, with stocks losing 40%.
That sounds pretty dire. In the 2007-09 financial crisis, the S&P 500 lost about 50% of its value. Minerd, in a note to clients and remarks on CNBC in April, sees a spate of corporate debt defaults as interest rates rise and companies can’t meet their payments. Right now, corporate debt sits at a record $8.8 trillion. When short-term rates reach 3%, he said, the problems will begin.
Jim Rogers, founder of the Quantum Fund. “When we have a bear market, and we are going to have a bear market, it will be the worst in our lifetime.”
At 75, Rogers has seen a lot of market turmoil, including the financial crisis of 10 years ago, the dot-com debacle of 2000-02 and the 1987 crash. He told Bloomberg News in February that high debt will harm the economy. “Debt is everywhere, and it is much, much higher now,” he said.
Certainly, these pessimistic views are hardly gospel. Nostradamus doesn’t live on Wall Street. And some of these gentlemen have been wrong before.
Bernanke said in March 2007 that the sub-prime mortgage mess could be “contained.” And Greenspan famously inveighed against the stock market’s “irrational exuberance” in 1996. If you listened to him then and exited stocks, you would rue your decision: The market had a fabulous run for the next four years. Rogers is a perma-bear about domestic stocks, who has been downbeat since the 1980s (he is famously enthusiastic about emerging markets, though).
As advisor Reppond pointed out, in all likelihood a slump is coming within two years. After all, this recovery and rising market are getting old. “If we believe a collapse in stock prices is coming, why not seek to lower that risk” by making sure you have a diversified portfolio that includes bonds.
Assuming that bonds don’t tank, as well, as some of the savants quoted here think is going to happen, you likely will survive it all.