John Hussman — the outspoken investor and former professor who has been predicting a stock crash — says the Federal Reserve is largely to blame for a toxic situation in markets that’s headed for “immediate and severe consequences.”
Hussman predicts that an imminent crash will wipe out $20 trillion of equity market value.
The situation is particularly dangerous right now because historically stretched valuations are being coupled with weakening market internals, says Hussman.
It makes John Hussman sick when people praise the Federal Reserve.
Yes, the central bank’s historically easy monetary policy helped drag the US out of its worst economic collapse in almost a century. But Hussman argues that this approach was ultimately “deranged,” and has created a bubble that’s threatening to put the 2008 financial meltdown to shame.
To Hussman — a former economics professor who’s now the president of the Hussman Investment Trust — the Fed hasn’t earned the plaudits it often receives. He argues the market has yet to feel the complete aftermath of the bank’s unprecedented stimulus.
“The current back-slapping about the success of extraordinary monetary policy is a lot like declaring victory in a football game at halftime, just before a flock of fire-breathing dragons swoops onto the field and eats the leading team,” he wrote in a recent blog post. “We have to allow for the possibility that the second half of the game will be violently unrecognizable.”
Hussman estimates that the coming crash will wipe out more than $20 trillion in market value over the next few years. And he blames the Fed.
“The Fed created yet another yield-seeking bubble that has encouraged vastly expanded indebtedness in every sector of the economy,” he explained.
A nuanced look at the role of valuations
However, there’s an obvious elephant in the room …read more
Source:: Business Insider