The stock market has been in disarray for most of the year. Investors have been speculating for months about when the time will be right to buy the dip. One top hedge fund manager, however, warns that the state of the economy is a lot gloomier than many people realize, and the stock market could take years, even decades, to recover.
No Pot of Gold
Boaz Weinstein, the founder of New York City based Saba Capital Management, said in an interview that he is “very pessimistic” about what will happen to the stock market when the central banks halt the stimulus programs that were rolled out to fight inflation.
“There isn’t a rainbow at the end of all this,” he warned. “There’s no reason that this difficult [economic] period will only last two to three quarters [and] no reason to think we’ll have a soft landing or a shallow recession.”
Saba Capital became one of the world's top-performing hedge funds at the height of the pandemic, and its Master Fund is up by about a third so far in 2022. As of September, Saba had amassed $4.8 billion worth of assets under management.
Weinstein said in the interview that quantitative tightening-the reversal of central banks' bond-buying programs-would create a strong headwind for investors. Many of the top economists have been issuing warnings that the Fed could “cause all kinds of trouble” by initiating the tightening too rapidly in its bid to tame inflation.
The Fed has already set its plan into motion, increasing the pace of the unwinding of its $9 trillion balance sheet while simultaneously hiking up interest rates.
Weinstein used Japan as an example to back up his claims. The country struggled with nearly a decade of economic stagnation after an asset bubble burst in the early 1990s. The rapid tightening of monetary policy caused the collapse of equity and land prices.
Weinstein predicts that developed markets “could certainly” turn out like Tokyo's Nikkei 225 index, which is still about 30% lower than its peak in 1989.
He blames inflation, interest rates, the war in Ukraine, spiraling energy costs, and concerns about the Chinese economy for the murky waters and bear market that investors are forced to trade in.
So far this year, the S&P 500 has lost around 21% of its value, and the tech-centered Nasdaq Composite is down around 31% since January of this year.
“In this selloff you have so many things that are problematic swirling around, some that are contradictory. There’s a lot of fear, but there’s been a lot of time for people to think about [the issues],” Weinstein said in his interview, “This year has been like a horror movie but with five monsters—you don’t know what to focus on, so you deleverage.”
This article was produced and syndicated by Wealth of Geeks.
Max Marvelous has coached over 250 Millennials to help take the stress out of money. When Max is not coaching, you'll find him reading financial books, indoor cycling, or visiting local pawn shops looking for swiss-made watches.