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Safe Haven Escape: “Fed Always Mistakes” – US Market Expert Expects Stock Market Crash | news

McCullough: The Fed was too late to start fighting inflation and is now exaggerating

His recommendations: gold, silver, mining stocks, commodity stocks and Indonesia
When is the end of the sale in sight? According to McCullough, this determines the Fed

Keith McCullough, founder and CEO of analyst firm “Hedgeye Risk Management,” warned earlier this year of a significant downturn in the stock market. Instead of stocks, he recommended investing in gold and silver. Now Keith McCullough repeats his warnings in an interview with “MarketWatch”: The bottom is far from being reached, a true stock market crash is yet to come – due to the failed monetary policy of the US Federal Reserve Bank (Fed) .

“Too late, too intense” – McCullogh criticizes the Fed’s monetary policy

McCullough identifies a key culprit in the current stock market crisis: the Fed. The US Federal Reserve’s monetary policy has been “too tight and too late”. As early as June 2020, his company “Hegdeye” had warned of consistently high inflation rates, but the Fed described them as “transient” until the middle or even the end of 2021, as “temporary”. Fed Chairman Jerome Powell is now too late to fight inflation. “As always”, he “sent this time”, according to the market expert.

It is equally bad for equity markets that the Fed has not only held back its previously ultra-expansionary monetary policy too late, but is also exaggerating. The six to seven interest rate hikes currently being discounted by the market would overwhelm the economy, raise unemployment and thus increase the chances of a recession.

McCullough: The US economy is in “picture 4” – falling inflation and falling growth

Underlying McCullough’s bearish forecast earlier this year, which now appears to be fulfilling, is what he dubbed the “Quad 4” phenomenon of falling inflation rates meeting slowing economic growth. Indeed, McCullough, like some other market analysts, assumes inflation rates in the US have already peaked or are about to peak. However, inflation remains high. For the fourth quarter, McCullough expects prices to rise by 6% over the course of the year, so he believes rising inflation is out of the question.

Likewise, post-crown economic growth, which drove international markets higher in the second half of 2020 and 2021, will also slow significantly. This toxic mix of “Quad 4” has always caused the S&P 500 to collapse by at least 20 percent throughout the history of the stock market, McCullough said. This time, the situation is particularly serious because, of all, the Fed wants to implement an extremely restrictive monetary policy in this problematic macroeconomic situation.

Falling asset prices are affecting consumer sentiment

McCoullough sees the connection between stock market prices and buying behavior as an important mutually reinforcing process. With the exception of commodities like gold, l / a> or silver, commodities and energy companies, as well as more defensive individual stocks like Coca-Cola or Procter Gamble, nearly all asset prices have been down since November 2021. According to McCoullough, this has an impact on consumer shopping mood, which is essential for economic health. The wealth of people in the United States “hit its highest level in November 2021” and has been declining ever since, which will have an impact on buying behavior. An economic slowdown is therefore intensified by the decline in the stock market, an extremely dangerous positive feedback.

McCullough recommends gold, silver, mining stocks and Indonesia ETFs

Where does the bear market expert see safe havens? How should investors position themselves in such difficult times? McCullough continues to recommend the classic of all safe havens: gold. Silver and mining stocks are also good choices at the moment. He also recommends holding short- and long-term US government bonds: he still thinks little about the tech stocks that have been sold off. In general, its exposure to equities is extremely low; he currently sees promising investment opportunities only in emerging markets that export commodities, particularly in South Africa and Indonesia. When does McCullough plan to invest more in US equity markets again?

The bottom could be reached in June if the Fed deviates from its hawkish course

This depends on how the Fed reacts to falling prices on US stock exchanges and the growing threat of recession. In light of growing pessimism about the future of the US economy, McCullough expects the Fed to move away from its very aggressive stance and significantly reduce the number of interest rate hikes: “Personally, I don’t think the Fed can push more than two interest rate hikes “. The US central bank around Powell will likely have to accept that the decision to push six to seven interest rate hikes was misleading, as negative expectations would also be reflected in weaker business and unemployment data in the coming months. In June, the Fed may finally back down, but equity markets would have seen a slump first, McCullough said. A less restrictive Fed will calm the markets again after the sell-off, equity markets could work to the bottom and then rise again. So, according to the stock expert, it would also be worth taking a closer look at the tech companies, which have recently gotten cheaper.

However, at least McCullough doesn’t rule out a much more dramatic scenario. If the Fed does not abandon its enormously aggressive monetary policy despite the deterioration of macro and micro data, this would have serious consequences: “At the end of the second quarter, in June, I expect the point of arrival. But if the Fed does not carry on this. landing point, then there will be no such landing point. ” Equity markets would then have much darker days ahead of them.

Financeen.net editorial staff

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