A leading financial industry analyst and expert says he sees a major stock market crash coming within weeks after Federal Reserve Chairman Jerome Powell warned this week that more interest rate hikes designed to curb inflation are coming.
“They’re playing catch up, and while they were doing quantitative easing in 2021, inflation started to rage and now they’re trying to catch up,” The Bear Traps Report founder Larry McDonald said on Fox Business Network’s “Mornings with Maria” Wednesday.
“Our 21 Lehman systemic risk indicators that look at equity and credit point to one of the highest probabilities of a crash in the stock market looking out 60 days,” McDonald, who is also known for writing a best-selling book predicting the Lehman Brothers collapse, warned, the outlet continued.
According to McDonald, the Fed’s most aggressive rate hike campaign since the 1980s to combat decades-high inflation has resulted in a “spectacular” withdrawal of capital from middle-class families. Although the consumer price index has gradually decreased from its peak of 9.1 percent in June 2021, it is still roughly three times higher than the average before the pandemic.
On Tuesday, Powell emphasized during his testimony on Capitol Hill that the Federal Reserve policymakers are ready to accelerate the pace of interest rate increases, as they anticipate rates to go higher than previously projected.
“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Powell stated in prepared remarks before the Senate Banking Committee. “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”
McDonald argued for every 1 percent increase in rates, $50 billion is taken “out of the pockets of middle-class families.”
“Auto loans right now are approaching 14 percent, almost 20 percent of auto loans are one thousand a month, and so the middle-class families are getting hammered here,” the financial guru pointed out. “So the consumer pressures are violent, but on the high end, the wealthy are doing well with excess savings and higher interest rates.”
The Bear Traps Report founder suggests that the average American investor is making a wise move by realizing that they now have a choice between stocks and bonds, and that one of these options may be more profitable than the other at present.
“Ten million in cash today generates $510,000 a year in Treasuries. Wow. Think about that: a year ago, you’re talking that this was $70,000. We have to do the math here, common sense,” McDonald explained.
“You’ve been in the market for two years in these moronic fang stocks that have gone nowhere, the most crowded trade on earth. You’re flat to down after two years, and now you’re looking over at a money market fund or a one-year treasury, and you get $510,000 of interest risk-free when a year ago you were getting 70,” he added.
He further predicted that the trigger for a market crash would come from S&P earnings significantly missing estimates.
“Everybody’s expecting, [Wall] Street is expecting $226, that’s priced for perfection. So what happens is, when we deteriorate in jobs the next two, three months, that will bring into question the S&P earnings, and the S&P earnings are probably $190, so that’ll trigger it,” McDonald said.