Brian Reynolds, Chief Market Strategist at New Albion Partners, argues that the current credit-led bull market in the US will likely last for several more years, even outpacing the 1990s bull market culminating in the tech bubble, as severely underfunded pension funds are forced into corporate debt and equity to meet their return requirements. Even though Brian thinks this will ultimately drive the US stock market much higher, he does not think it will end well and refers to this process as a “daisy chain of financial engineering.”
Here’s a portion of his recent podcast interview with Financial Sense where he also provides his outlook on where the next bubble is likely to concentrate, how it will end, and what investors should pay attention to for monitoring how this will unfold in coming years.
Brian, you discuss three very important themes when it comes to understanding the credit boom and bust cycle, particularly as we see it playing out currently here in the US. Let’s talk about the first theme that you highlight driving US markets today and which you say could even possibly rival what we saw in the 1990s leading up to the tech bubble.
“Well, I think it’s not only going to rival the 1990s, I think it’s going to exceed it because our nation’s public pension funds have grown to the point where they dwarf the Federal Reserve. Since Detroit went bankrupt in 2012 those pensions have realized that they are underfunded and their current and future retirees are on the hook for any shortfall so across this country in the last four to five years, every major state has either thought about raising taxes or has raised taxes to bring more money into our pension system; and that money is being allocated to our credit market so instead of worrying about if it’s going to end, it’s actually more likely to intensify in the next two to three years.”
This post was published at FinancialSense on 09/08/2016.
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