Market Expert Believes Fed’s Actions Will Lead to Market Crash
Market expert David Morgan believes the actions of the Federal Reserve will tear the markets down, according to Business Insider.
Morgan is the author of The Morgan Report. "I'm looking at the big picture — the failure of the economic system as we know it. Or probably, more precisely, the Fed or monetary system as we know it."
The Federal Reserve has been active in recent months, expanding its balance sheet by almost $2.8 trillion. Since mid-March, the central bank has:
Morgan believes that the Fed’s helping hand will be ineffective moving forward. He believes the Fed is out of ammo and that any further action would do more harm than good.
"All this money-printing from this point forward is only going to exacerbate the problem, make it worse, and cause the failure to basically accelerate," he said. "We've already printed all the money that's worked up until this point. And now, from this point forward, no amount of money-printing is going to help at all."
Morgan's assessment of the landscape is similar to that of Ray Dalio, the founder and co-chief investment officer of Bridgewater Associates. For years, Dalio has spoken about the Fed's inability to print problems away.
Morgan’s beliefs align with Ray Dalio, founder and co-chief investment officer of Bridgewater Associates.
In August of 2019, Dalio described 3 different approaches the Fed could take and explained issues with each.
· "Monetary Policy 1 (i.e., the ability to lower interest rates) doesn't work effectively because interest rates get so low that lowering them enough to stimulate growth doesn't work well.
· "Monetary Policy 2 (i.e., printing money and buying financial assets) doesn't work well because that doesn't produce adequate credit in the real economy (as distinct from credit growth to leverage up investment assets), so there is 'pushing on a string.' That creates the need for …
· "Monetary Policy 3 (large budget deficits and monetizing of them) which is problematic especially in this highly politicized and undisciplined environment."
"The financial system is basically one mass manipulation at this point in time," Morgan said. "It's not aligned with reality."
Stocks aren’t cheap right now. "Fundamentally, I can build a huge case around why the stock market is overvalued and why it should come down," he said. "I think it will — I still think that's a more likely case."
High valuations and a depleted central bank don’t pair well with uncontrolled inflation. "The problem with that is, one, it's better than money in the bank, but it isn't sufficient to keep you ahead of the inflationary depreciation of your currency," he said. "Even though your stock has doubled, the purchasing power of your fiat has been cut by 400%."
Other market experts are worried about inflation as well. UBS strategist, Bhanu Baweja recently stated, "further, the inflation surge could happen quickly and with little warning," He continued. “That inflationary outlook may be aided by additional rounds of stimulus checks, enhanced unemployment insurance benefits, tax reductions, and PPP loans that keep disposable income from falling even in the face of high unemployment."