However, a major hedge fund manager has warned that the economic outlook is bleaker than many realize, and stocks could suffer for years or even decades.
Boaz Weinstein, who founded New York-based Saba Capital in 2009, told the financial times in an interview published Monday that he was “very pessimistic” about what will happen to the markets when central banks undo the stimulus programs they put in place to combat runaway inflation.
“There is no rainbow at the end of all this,” he warned. “There is no reason for it to be so difficult. [economic] the period will only last two to three quarters[and]there is no reason to think that we will have a soft landing or a shallow recession.”
Saba Capital, where Weinstein serves as CIO, was one of the world’s top-performing hedge funds at the height of the pandemic in 2020, according to the FOOTand its Master Fund is up about a third so far this year.
As of September, Saba had $4.8 billion in assets under management.
Weinstein said in Monday’s interview that quantitative tightening, the reversal of central banks’ bond-buying programs that lead them to sell debt in markets, was going to create “a real headwind for investors.”
Many leading economists have warned that the Federal Reserve could cause “all kinds of trouble” by tightening up too quickly in its battle to control inflation. Steve Hanke of Johns Hopkins warned earlier this month that the Fed was on track to cause a “major recession” by tightening US monetary policy too much.
In recent months, the Fed has accelerated the reversal of its $9 billion balance sheet while carrying out a series of interest rate hikes.
Weinstein pointed to Japan, which was grappling with a decade of economic stagnation after an asset bubble burst in the early 1990s when rapid tightening of monetary policy caused the collapse of equity and land prices. He predicted developed markets “certainly could” follow in the footsteps of Tokyo’s Nikkei 225 index, which is still about 30% below the all-time high it reached in 1989.
According to Weinstein, the correction of the overvalued Nikkei “changed the psychology of whether being a shareholder is such a prized status.”
Inflation, rising interest rates, spiraling energy costs, the war in Ukraine and concerns about the Chinese economy were creating murky waters for investors trading in the current bear market, he added.
So far this year, the S&P 500 has lost 21% of its value, while the tech-heavy Nasdaq Composite is down 31% since the start of 2022.
“In this settlement, there are so many things going around that are problematic, some that are contradictory. There is a lot of fear, but there has been a lot of time for people to think about [the issues]Weinstein told the FOOT.
“This year has been like a horror movie, but with five monsters: you don’t know what to focus on, so deleveraging.”
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