Investment and financial experts issued a warning Wednesday that the U.S. economy is heading for a crash. Scott Minerd, chief investment officer of Guggenheim Partners, told CNBC that a combination of a fiscal deficit driven by corporate tax cuts and rate hikes by the Federal Reserve would put an end to the stock market’s strong showing.
“Ultimately this expansion will end and it is going to end because monetary policy is going to get too tight at the same time fiscal policy is going to turn into fiscal drag in 2020,” Minerd told CNBC on Wednesday.
This isn’t the first time that Minerd has warned about trouble for the economy. A few months ago, he predicted that there would be a sharp recession and a 40 percent drop in stock value. He also took to Twitter last week to point out that the market activity over the past few weeks looks very similar to the stock market crash in October 1987.
Minerd says that climbing yields translate to higher borrowing costs for corporations. That will hurt investments and will translate to trouble for the economy in general.
“When we get there … our work is showing us that the stock market will probably pull back 40 percent from the highs and that we’ll probably see credit spreads widen dramatically. Corporate America is overlevered,” he said.
The stock market dropped on Wednesday, with the Dow Jones Industrial Average closing down more than 800 points. Minerd doesn’t believe that this was indicative of an imminent crash, however. He called the dramatic drop a seasonal slowing and said it was too soon to say that the bull market was ending. He predicted that the stock drop would level out this month.
#DowJones down today 831 points. Let's not panic & take a minute to put this into perspective. The #Dow is still positive for the year - this drop only takes us back to approximately the same level the Dow was at on Aug. 24, 2018. See chart of the Dow below. #invest #indexfunds pic.twitter.com/gzs624jjId— Scott Salaske (@scottsalaske) October 10, 2018
Other investors agreed with Minerd’s opinion on Wednesday’s market crash. Art Cashin, a veteran trader, said that he expected October to be a bit choppy for the market, but that things would level out after the first few weeks of the month.
Long-term, however, Minerd thinks that things are going to get worse before they get better. He likened the economy to the Titanic heading full steam for an iceberg. In a tweet, he warned that a crash could be ahead as soon as 2020.
Just as an iceberg loomed in the distant darkness to be struck by the Titanic under full steam, so the US economy approaches the distant fiscal drag of 2020 under the full steam of rate hikes to contain inflation and an overheating labor market.— Scott Minerd (@ScottMinerd) October 10, 2018
“It’s too soon to call the end of the bull market but over the course of the next six to 12 months I think people should probably take their profits and bunker down for the next recession,” said Minerd.