First it was Sam Zell, warning “it’s very likely that something has to give here.” Then George Soros upped his market hedge drastically, followed by Carl Icahn’s “worry about excessive money printing,” adding that he was “very nervous” about US equity markets. “Financial markets are euphoric,” warned Stan Druckenmiller, warning that “market participants are pricing in hardly any risks,” and Crispin Odey explained “there are consequences to CB actions,” stating that “we have front-row seats to an imminent market shock.” And now hedge fund manager Andy Redleaf (who predicted “there is going to be a panic in credit markets,” in 2007) has come out with the most ominous of warnings yet among the billionaire crowd… “I think it is a truly scary time.”
“Sometime in the next 12 to 18 months, there is going to be a panic in credit markets,”billionaire Andy Redleaf, a 50-year-old hedge fund manager, wrote to investors in December of 2007. “The driver in the credit market panic of 2007 or 2008 will be a sudden, profound and pervasive loss of faith in the alchemy of structured finance as currently practiced.” And as CNBC notes, he is worried again…
Redleaf wrote that the stimulus used to put fresh money in markets could end poorly, just like loose credit standards in housing before 2007 crushed that market.
“We do not know exactly where all the credit creation of this cycle has gone. Certainly money sits idly as excess reserves, but just as certainly money that would not exist but for unconventional monetary policy has distorted prices and resource allocation,” Redleaf wrote.
He noted that the oil market—which recently crashed from around $100 a barrel to $43 today—may have been overly inflated by China “buying on easy credit” and other excess money going to oil producers who in turn increased supply.
Redleaf also said that stock markets may similarly be propped up by sovereign wealth funds and the Swiss central bank owning large amounts of equities.
“There are some parallels with the collapse in home prices which preceded the financial crisis,” he explained.
Redleaf also is worried about the euro’s drop in value...”the bullish consensus on the dollar strike (is) as one-sided as anything I can remember, but it would be quite a remarkable move,” Redleaf wrote of Goldman’s 0.8 by 2017 prediction.
That move could mean big trouble.
“It strikes me as completely plausible that a further decline in the euro triggers a recession in the U.S.,” Redleaf wrote.
“The U.S. has a bear market, high-yield spreads move to 1998 type levels (1,000-1,200 [basis points]), U.S. weakness and market tightening of credit probably make the recession global.”
Of course, he is not the first billionaire, and won’t be the last.
Billionaire Sam Zell
“People have no place else to put their money, and the stock market is getting more than its share. It’s very likely that something has to give here.”
“I don’t remember any time in my career where there have been as many wildcards floating out there that have the potential to be very significant and alter people’s thinking,” he said. “If there’s a change in confidence or some international event that changes the dynamics, people could in effect take a different position with reference to the market.”
“It’s almost every company that’s missed has missed on the revenue side, which is a reflection that there’s a demand issue,” he said. “When you got a demand issue it’s hard to imagine the stock market at an all-time high.”
He also lamented about how difficult it is to call a market top. “If you’re wrong on when, that’s a problem.” His answer: “You got to tiptoe … and find the right balance.”
“This is the first time I ever remember where having cash isn’t such a terrible thing, despite the fact that interest rates are as low as they are,” he added.
Ironically, Carl Icahn – poster-child of the leveraged financial engineering that has overtaken US equity markets on the back of Central Bank largesse – told CNBC that he was “very nervous” about US equity markets. Reflecting on Yellen’s apparent cluelessness of the consequences of her actions, and fearful of the build of derivative positions, Icahn says he’s “worried” because if Yellen does not understand the end-game then “there’s no argument – you have to worry about the excesssive printing of money!”
Simply put, Druckenmiller concludes, rather ominously, “I am fearful that today our obsession with what will happen to markets and the economy in the near term is causing us to misjudge the accumulation of much greater long term risks to our economy.”
Having previously noted that “this is the best shorting opportunity since 2007-9,” Billionaire hedge fund manager Cripsin Odey warns that (just as Goldman has noted) the global economy is h”eaded for recession and central banks will not be able to able to come to the rescue because they have exhausted the arsenal of policy weapons.” No matter what happens, he chides, the market shrugs it off as they are “kind of relying on central banks pulling a rabbit out of a hat.” They will not, “Central banks are not all singing and all dancing,” and cannot avoid the consequences of what they are doing, concluding, “you and I have got grandstand seats here [to an imminent market shock],” and investors are about to “find out just how illiquid it really is out there.”
One of the world’s leading hedge fund managers has warned that global economies are headed for recession and central banks will not be able to able to come to the rescue because they have exhausted the arsenal of policy weapons.
And here the BIS explains broken markets so easily, even a Janet Yellen can get it:
Financial markets have been exuberant over the past year, […] dancing mainly to the tune of central bank decisions. Volatility in equity, fixed income and foreign exchange markets has sagged to historical lows. Obviously, market participants are pricing in hardly any risks.
Growth has picked up, but long-term prospects are not that bright. Financial markets are euphoric, but progress in strengthening banks’ balance sheets has been uneven and private debt keeps growing. Macroeconomic policy has little room for manoeuvre to deal with any untoward surprises that might be sprung, including a normal recession.
So now we have five billionaires and the BIS all flashing warning signals which can only mean one thing: stocks are undervalued so buy, buy, buy ahead of tomorrow’s “impatient” Fed.