David Stockman: Brace for 'Huge, Nasty Morning After' When Stocks Collapse
Friday, 22 May 2015 12:39 PM
Former White House Budget Director and Newsmax Finance Insider David Stockman warns that stocks and bonds will soon crash and urged investors to brace for a “huge, nasty morning after.”
"The markets are going to be in for a huge, nasty morning after as people begin to look at where we really are," the White House budget chief in the Reagan administration told CNBC.
"We saw that Wednesday when the market had another spasm upward on the suggestion that the Fed won't raise interest rates after all," said Stockman, describing the S&P 500’s jump to an all-time intraday high Wednesday after Fed minutes hinted that a rate increase isn’t likely.
“The market seems to want to keep chopping up all of it on the basis that maybe the Fed will give them one more month of reprieve," he said.
He described the market as "a coiled spring that is going to break loose one of these days and there is going to be some pretty drastic, and even violent, adjustment."
Stockman said the market seems to crash “every eight years," he said. "We had one in 2000 and everyone said, 'This time was different.' Then we saw a massive catastrophic decline. Eight years later, we had the same thing," Stockman said.
"Now we've had the weakest recovery in post-war history and what has happened? The Fed has simply reflated the bubble to an even more gigantic proportion," he said.
To be sure, Stockman sees troubling signs everywhere he looks.
"It's not possible that the interest rate on the 10-year German bond should be 70 basis points when it was 5 just a few weeks ago — or even that the U.S. Treasurys should be trading at 2 percent on the 10-year when we have taxes and inflation," he said.
"Everything is totally distorted and there is a day of reckoning coming down the pike."
Stockman isn’t the only prominent pundit to see economic omens.
Legendary Vanguard Group founder Jack Bogle warns that there is an "awful lot" to fear in the current stock market and investors have few “good options.”
"This is a hard time to invest because there aren't a lot of good options to stocks, and bond yields are extremely low," he told CNBC.
He said the Federal Reserve’s continued insistence on low interest rates has only artificially boosted stock prices.
"That's a scary thing because it can't stay that way forever," he said. "So, I do advocate a cautious approach to investing."
"I've been through, I think, four 50 percent declines, at least three, and we get over them and march on," he said. "It's a good idea to not pay too much attention to the stock market and think about the long-term productivity of business," he said.
Nobel Laureate Economist Robert Shiller says that the world’s economy remains mired in “a vicious circle of despair” seven years after the 2008 global financial crisis.
“Fear causes individuals to restrain their spending and firms to withhold investments; as a result, the economy weakens, confirming their fear and leading them to restrain spending further,” wrote Shiller, a Sterling Professor of Economics at Yale University and is a fellow at the Yale School of Management's International Center for Finance.
“The downturn deepens, and a vicious circle of despair takes hold. Though the 2008 financial crisis has passed, we remain stuck in the emotional cycle that it set in motion,”he wrote in his Project Syndicate blog.
“It is a bit like stage fright. Dwelling on performance anxiety may cause hesitation or a loss of inspiration. As fear turns into fact, the anxiety worsens – and so does the performance. Once such a cycle starts, it can be very difficult to stop.”
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© 2015 Newsmax Finance. All rights reserved."The markets are going to be in for a huge, nasty morning after as people begin to look at where we really are," the White House budget chief in the Reagan administration told CNBC.
"We saw that Wednesday when the market had another spasm upward on the suggestion that the Fed won't raise interest rates after all," said Stockman, describing the S&P 500’s jump to an all-time intraday high Wednesday after Fed minutes hinted that a rate increase isn’t likely.
“The market seems to want to keep chopping up all of it on the basis that maybe the Fed will give them one more month of reprieve," he said.
He described the market as "a coiled spring that is going to break loose one of these days and there is going to be some pretty drastic, and even violent, adjustment."
Stockman said the market seems to crash “every eight years," he said. "We had one in 2000 and everyone said, 'This time was different.' Then we saw a massive catastrophic decline. Eight years later, we had the same thing," Stockman said.
"Now we've had the weakest recovery in post-war history and what has happened? The Fed has simply reflated the bubble to an even more gigantic proportion," he said.
To be sure, Stockman sees troubling signs everywhere he looks.
"It's not possible that the interest rate on the 10-year German bond should be 70 basis points when it was 5 just a few weeks ago — or even that the U.S. Treasurys should be trading at 2 percent on the 10-year when we have taxes and inflation," he said.
"Everything is totally distorted and there is a day of reckoning coming down the pike."
Stockman isn’t the only prominent pundit to see economic omens.
Legendary Vanguard Group founder Jack Bogle warns that there is an "awful lot" to fear in the current stock market and investors have few “good options.”
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"This is a hard time to invest because there aren't a lot of good options to stocks, and bond yields are extremely low," he told CNBC.
He said the Federal Reserve’s continued insistence on low interest rates has only artificially boosted stock prices.
"That's a scary thing because it can't stay that way forever," he said. "So, I do advocate a cautious approach to investing."
"I've been through, I think, four 50 percent declines, at least three, and we get over them and march on," he said. "It's a good idea to not pay too much attention to the stock market and think about the long-term productivity of business," he said.
Nobel Laureate Economist Robert Shiller says that the world’s economy remains mired in “a vicious circle of despair” seven years after the 2008 global financial crisis.
“Fear causes individuals to restrain their spending and firms to withhold investments; as a result, the economy weakens, confirming their fear and leading them to restrain spending further,” wrote Shiller, a Sterling Professor of Economics at Yale University and is a fellow at the Yale School of Management's International Center for Finance.
“The downturn deepens, and a vicious circle of despair takes hold. Though the 2008 financial crisis has passed, we remain stuck in the emotional cycle that it set in motion,”he wrote in his Project Syndicate blog.
“It is a bit like stage fright. Dwelling on performance anxiety may cause hesitation or a loss of inspiration. As fear turns into fact, the anxiety worsens – and so does the performance. Once such a cycle starts, it can be very difficult to stop.”
Related Stories:
- Bogle: Rapacious Wall Street Is Bigger Retirement Problem Than Low Savings Is
- Bogle Sides With Obama on Fiduciary Standard for Retirement Advisers
- David Stockman: 'There Are No Markets, Just a Raging Casino'
- David Stockman: 'Stock Buybacks, LBOs Are the Bastard Offspring of the IRS and Fed'
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