Last weekend, One River’s CIO Eric Peters explained what he thought would be the nightmare scenario for the next Fed chair, who as we now know will either be Jerome Powell or John Taylor, or both (with an outside chance of Yellen remaining in her post). According to the hedge fund CIO, the “worst case scenario” is one in which despite an improving economy, yields simply refuse to go up, leading to the final asset bubble and Fed intervention that “pops” it:
‘if we don’t see a sustained cyclical jump in wages, then yields won’t go up. And if yields don’t go up, then the asset price ascent will accelerate,’ continued the strategist. ‘Which will lead us into a 2018 that looks like what we had expected out of 2017; a war against inequality, a battle for Main Street at the expense of Wall Street, an Occupy Silicon Valley movement.’ He paused, flipping through his calendar. “Then you’ll have this nightmare for the next Federal Reserve chief, because they’ll have to pop a bubble.’ While Peters never names names in his pieces, the “strategist” in the weekend letter was BofA’s Michael Hartnett, who several days after Peters penned the above, followed up with some thoughts of his own on precisely this topic, and in a note released this week, described what he believes is the “biggest market risk” for the market. Not surprisingly, it is precisely what Peters was referring to in the above excerpt.
This post was published at Zero Hedge on Oct 20, 2017.