News

Are Central Banks Conducting a “Ponzi Scheme”?

The investment chief for Guggenheim Partners believes so.

Scott Minerd was interviewed by Bloomberg at the recent Davos 2020.

Here's a Jan. 21 article excerpt:

Scott Minerd has a message for his fellows at Davos who are applauding rallying markets: Things aren't as good as they seem.

The Guggenheim Partners investment chief likened the inflation of asset prices caused by the loose money policies of central banks to a "ponzi scheme" that eventually must collapse.

"We will reach a tipping point when investors will awake to the rising tide of defaults and downgrades," he wrote in a letter from the World Economic Forum meeting. "The timing is hard to predict, but this reminds me a lot of the lead-up to the 2001 and 2002 recession."...

Minerd cited rising defaults despite a rally in riskier assets, and reiterated a warning that BBB-rated bonds risk further downgrades. He said that type of debt is at a greater risk of deterioration than it was in 2007.

Anne Walsh, Guggenheim's fixed-income chief, said in an interview that 15% of the U.S. economy is already in recession. She said the Federal Reserve's efforts to pump liquidity into markets has created "zombie companies" that may see an outflow of capital as the utility of that money continues to diminish, she said.

The longer that this market runs, the harder the fall will be when it ends, she said.

Relatedly, the January 2020 Elliott Wave Financial Forecast showed this chart and said:

SomethingisWrong

As shown on the chart, [the] prior bout of illiquidity was a piker by comparison to what is currently transpiring. The Fed's weekly repurchase agreement's reserve balance has exploded and is now up to $255 billion, 90% greater than the peak reading during the 2007-2009 crash. Something is wrong. In the last bear market, the Federal Reserve did not resort to direct injections until September 2008, when the bear market was almost a year old.

Cash will be king during a historic credit collapse.

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