One market analyst has warned a crash may occur within days after Federal Reserve Chair Jerome Powell signaled the bank isn’t done raising rates.
The Bear Traps Report’s Larry McDonald said on “Mornings with Maria” on Wednesday, “They’re playing catch up, and while they were doing quantitative easing in 2021, inflation started to rage and now they’re trying to catch up,”
According to McDonald, who is also known for penning a best-selling book on the fall of Lehman Brothers, “Our 21 Lehman systemic risk indicators that look at equity and credit point to one of the highest probabilities of a crash in the stock market looking out 60 days,” he said.
As the Fed begins its most aggressive rate hike campaign since the 1980s to combat decades-high inflation, McDonald claimed that the outflow of capital from middle-class families has been “spectacular”. The consumer price index is still around three times higher than the pre-pandemic average, but gradually declining from a peak of 9.1% reached in June of last year.
Powell emphasized on Capitol Hill on Tuesday that the central bank officials are ready to accelerate rate rises because they anticipate rates to rise higher than anticipated.
Powell made the statement in remarks prepared for delivery before the Senate Banking Committee. “The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Powell said in remarks prepared for delivery before the Senate Banking Committee.” Powell said. “We would be willing to increase the pace of rate hikes if the sum of the data were to indicate that greater tightening is needed.”
According to McDonald, $50 billion is pulled “out of the pockets of middle-class families.” for every 1% increase in rates.
The expert noted that auto loan rates are currently close to 14% and that over 20% of auto loans have monthly payments of $1,000 or more. As a result, middle-class families are suffering in this area. Because of their surplus funds and rising interest rates, the wealthy are doing well despite the intense consumer pressures.
The founder of the Bear Traps Report claims that by realizing that they now have a choice between stocks and bonds, one may be more profitable than the other, the average American investor is acting more shrewdly.
“Ten million in cash today generates $510,000 a year in Treasuries. Wow. Think about that: a year ago, you’re talking that this was $70,000. We have to do the math here, common sense,” McDonald gave details. “You’ve been in the market for two years in these moronic fang stocks that have gone nowhere, the most crowded trade on earth. You’re flat to down after two years, and now you’re looking over at a money market fund or a one-year treasury, and you get $510,000 of interest risk-free when a year ago you were getting 70.”
He went on to forecast that the S&P earnings will significantly miss estimates, which will be the catalyst for the market meltdown.
Everybody’s expecting, [Wall] Street is expecting $226, that’s priced for perfection. So what happens is, when we deteriorate in jobs the next two, three months, that will bring into question the S&P earnings, and the S&P earnings are probably $190, so that’ll trigger it,”said McDonald.
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