Monetary Policy Will Bring Stock Disaster; 30-40% Correction Ahead

Renowned investment advisor Bill Gross warns in his latest investment outlookthat the stock market’s bull supercycle is coming to an end. Gross believes that the “new normal” of zero-percent interest rates and growing government debt will push asset markets into a new era of very low or negative growth.

Policymakers and asset market bulls, on the other hand speak to the possibility of normalization – a return to 2% growth and 2% inflation in developed countries which may not initially be bond market friendly, but certainly fortuitous for jobs, profits, and stock markets worldwide. Their “New Normal”. . . depends on the less than commonsensical notion that a global debt crisis can be cured with more and more debt. . . I equated such a notion with a similar real life example of pouring lighter fluid onto a barbeque of warm but not red hot charcoal briquettes in order to cook the spareribs a little bit faster. Disaster in the form of burnt ribs was my historical experience. It will likely be the same for monetary policy, with its QE’s and now negative interest rates that bubble all asset markets.”

Marc Faber holds the same fears, but his warnings are even more dire. In an interview on CNBC, Faber explains why sees a 30-40% correction in the US stock market in the near future.

(Video length 00:02:49)

Highlights from Faber’s interview:

“The truth is, the US economy is slowing down despite the fact that interest rates, the Fed Fund rate, has been close to zero since 2009. Six years…

“I think, and I’ve been thinking for a long time, not just the last six months. I’ve been thinking the Fed will not increase interest rates unless there is very high inflation, like 5 [or] 10%. Before that, they will not increase interest rates. They’ve always found an excuse not to do it. Either a strong dollar, or a weakening economy, or a bubble in the stock market, where they are afraid that if they increase rates stocks will go down. But they won’t do it. So my view is until 2016, no interest rate increase…

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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