The stock market hasn’t seemed to
care about the economy. Are we in a
I believe we’re in a [B.S.] market. Thestock market is dancing to the tune ofthe Federal Reserve, and [Fed Chair]Jerome Powell is the orchestra leader.I have zero confidence in what’s goingon. The market is so far away from anykind of fundamental valuation numbersthat it’s not funny. Prospective P/Es arein the stratosphere. As measured by theWilshire 500, the stock market as a percentage of GDP is at or nearall-time record levels.
These kinds of elevatedlevels — even higher [rela-tively] than those [prior tothe] 1929 [crash] — generally haven’t been good forequity investment returns.
What’s your forecast for
the market, then?
For the next decade, I fullyexpect equities to provide a negativereal return. Normal return will reflect[the level of] inflation. For the next yearor two, I expect inflation to be virtuallynonexistent. There will be pockets ofinflation [because of] shortages; otherareas will be in deflation. This periodcould be analogous to stagflation in the1970s. However, certain pockets of thestock market could be beneficiaries.
Then what should advisors be telling
People who are feeling comfortabletoday because their portfolio has recovered [from the March decline] are in avery foolish position of comfort in thisvery inflated, manipulated, distortedarena that’s the stock market.
How do you make such accurate calls so
far in advance?
I’m using a different lens about how
an economic system works. Most folks
have been trained to analyze the econo-
my from a Keynesian economics stand-
point. But there’s an alternative view
called the Austrian school of economics,
which I learned about after I was out of
school. I thought it had more relevance
than the Keynesian.
[The Austrian school argues] thatbefore every great monetary inflationor stock market bubble comes a creditinflation — credit excess. [It argued]starting in about 1925, that we were onthe verge of a major economic disruption. This was the 1929 collapse. Sowhen I saw what was going on pre-2007-2009, I thought that was one of the greatcredit excesses of all time. And now,here we are again.
There has been a debt explosion inboth the private and government sectors. The U.S. economy today is now ata more levered position than we wereprior to the bubble that burst earlierthis year. Bankers aren’t taking on creditrisk, and all bankers have raised theircredit standards. They’re actually buying Treasurys. So they must be fearful ofsomething out there.
You exited direct ownership of equities
in 2016. Are you invested in any
I have five basis points, maybe less, inequities. I own one mutual fund, theFPA International Value Fund.
Do you own any bonds?
I have bond funds; [for example], ownership in the FPA New Income Fund,
a high-quality bond fund. But [if] ratescome down further and spreads contract, it’s going to be very tough for [thefund] to operate, as it will be for mostbond funds.
You’re heavily invested in gold. Please
I have little confidence in what I seeunfolding in the stock market regardless of who’s elected president. I’vemade money in areas that aren’t partof the inflated, manipulated, distortedstock market. If it wereto break and the economy were to get hit again,which is what I anticipate, I fully expect that theareas that I’m in, particularly gold and collectibles,will be considerably moreinsulated from damage andprobably will be longer-term beneficiaries.
As a result of what the
Fed and the federal government weredoing in March, I concluded therewould be little constraint on either Fedor fiscal policy and that we were headedto 200% debt-to-GDP, as well as a lot ofother things [I forecast] that are going totranspire. Thus, I concluded for the firsttime in my career that fiat currenciesare an endangered species, and I startedbuilding a major position in gold.
What if the opposite occurs?
If the economy goes to the moon andwe have a V-shaped recovery, and I’mtotally wrong, I’ll say, “Well, I missedthat one!” But the odds are that myteeter-totter isn’t going to be affected[adversely]. I’m in a kind of neutralposition as to risk. So I sleep very wellat night.
Jane Wollman Rusoff specializes ininterviews with thought leaders. An authorand prolific journalist, Jane is founder ofwww.FamilyStarProductions.com.
“Regardless of who’s president, we’re
in for a prolonged period of economic
stagnation — limited growth. It will
stretch to 2024 or 2025 before we get
back to the pre-COVID- 19 fourth-
quarter 2019 level.”