Dow futures dipped 54 points in early trading Tuesday following a record breaking day for the US stock market.
But with stocks at record highs, one fund manager is sitting firmly on the sidelines. In a blistering interview with USA Watchdog, Pento Portfolio Strategies’ Michael Pento blamed the Federal Reserve for inflating a “magnificent bubble” and warned of a brutal reversal.
“When this thing implodes, we are all screwed. On a global scale, we have never before created such a magnificent bubble. These central bankers are clueless, and they have proven that beyond a doubt. All they can do is to try to keep the bubble going.”
DJIA futures contracts slipped on Tuesday, after the US stock market carved out a new all-time high in Monday’s session.
Pinto believes the stock market has been artificially inflated by Federal Reserve stimulus. And if they stop injecting money into the economy, a deep recession will take hold.
“That’s why the Fed’s panicking.”
His comments come as the Federal Reserve prepares to cut the target interest rate for the third-straight time. Sue Trim at Manulife Investment Management echoed the sentiment in an interview with Bloomberg this morning. Although stock prices are at record highs, she said, we’re not seeing a noticeable boost in the economy itself.
“The real risk is that we’re seeing a boost to asset prices but no real uptick in the real economy.”
Pinto isn’t the only money manager nervous about inflated asset prices. Michael Burry, who famously predicted the 2008 housing crisis, believes that passive index funds have created a huge stock market bubble.
“This is very much like the bubble in synthetic asset-backed CDOs before the Great Financial Crisis in that price-setting in that market was not done by fundamental security-level analysis.”
Even legendary investor Warren Buffett is nervous about a downturn. Asset prices are wildly overvalued according to his favorite indicator and the Oracle of Omaha is sitting on his largest cash pile since prior to the 2008 collapse.
Of course, no-one can predict the moment of downturn, but as Burry puts it:
“The longer it goes on, the worse the crash will be.”
Last modified: June 14, 2020 9:52 AM UTC