The final quarter of the year starts with some optimism.
The U.S. is said to remove sanctions onIran, and Saudi Arabia is said to make peace with Yemen. On trade, investors are hopeful that a deal will happen. Mark Yusko, the CEO and Chief Investment Officer (CIO) of Morgan Creek Capital, does not buy all of that. In an exclusive interview with CNBC, Yusko, who is well-known for his diverging views, said that he does not see a deal happening.
Trade Optimism Unwarranted
The interview came shortly after the U.S. announced that a meeting with Chinese officials would happen on October 10. According to Yusko, the chances of a trade deal have dissipated, especially since House Speaker Nancy Pelosi started impeachment proceedings against President Trump. Yusko argued that China would likely wait and see whether Trump will be removed from office. China could also wait for the next election to see whether a new president can ease the tensions.
The problem is we’re fighting a war in Washington that does not exist. It went away Twenty years ago. 20 years ago, it was all about made in China. We used to outsource labor and pollution, and they sold us cheap goods. Today, everything is all about made for China. They have become the world’s most important market.
The consensus among investors is that a trade deal could push stocks higher. Again, Yusko does not buy this. In the interview, he pointed to the NAFTA renegotiation, where only a few things were changed. On a trade deal with China, he said that it would not have major impacts on the flow of goods between the two countries.
To some extent, he is right. However, the reality is that stocks could jump if a trade deal, even a partial one, is announced. That’s because investors believe that manufacturing, service, and the overall trade activity will improve with a new agreement. They also believe this will translate to higher earnings from companies as “trade peace” becomes the new normal. This would change in the next quarters as companies start to release their earnings.
The latest interview came a year after Yusko appeared on the same show. A year ago, he argued that the bear market will continue until 2020. Of course, this turned out to be false because stocks have had a good year. So far this year, the S&P 500, Dow Jones, and Nasdaq have gained double digits, even reaching new records.
Yusko expects the U.S. to enter a recession in the coming year. In the interview, he argued that corporate debt in the country would be the leading cause of the next recession. According to Federal Reserve data, corporate debt in the U.S. has been on an upward trajectory. It currently stands at more than $6 trillion. According to Yusko, the recession will be caused by a slowing economy coupled with high corporate and consumer debt. The chart below shows the surge in corporate debt in the US.
Mark Yusko on Bitcoin: Buy it at any level
Yusko is a well-known bitcoin bull. Four months ago, when bitcoin was trading at $12,000, he told CNBC that he believed that Bitcoin could end the year at $30,000. Asked about this week’s carnage, Yusko said investors should buy it at any price. He equated the rise of bitcoin to the rise of Amazon, whose stock has surged by more than 1,700% in the past 20 years.
The daily price of bitcoin doesn’t matter… Every fundamental of bitcoin – usage wallets, block size transaction, number of transactions, and rising hash rates point to a higher price.
The question about bitcoin came as the cryptocurrency’s price had one of its worst weeks this year.
— Mark W. Yusko (@MarkYusko) September 27, 2019