- Stocks look “pretty expensive” and a recession is “just around the corner,” Steve Hanke told an insider.
- A Johns Hopkins University professor expects the economy to slow down in the first half of next year.
- Hanke expects inflation to moderate, 10-year bond yields to fall, and house prices to continue rising.
Stocks look expensive and a recession is likely next year, said Steve Hanke.
The risks of holding stocks instead of government bonds are usually offset by superior expected returns.
But as U.S. Treasury yields have risen in recent months and stock prices have skyrocketed, equity risk premiums have turned negative. Stocks are expected to yield lower returns than bonds, even though they are riskier assets.
“This is unusual and suggests that the stock is significantly overvalued,” Hanke told an insider.
The professor of applied economics at Johns Hopkins University is known for serving as president of Toronto Trust Argentina in 1995 when it was the world’s best performing market mutual fund.
Regarding the housing market, Hanke said: shortage of homes for sale. He blamed the limited inventory of existing homes and insufficient construction of new homes for more than 15 years. As a result, unmet demand will push prices higher, he suggested.
Hanke, a former economic adviser to President Ronald Reagan, also explained to insiders why he expects U.S. growth to slow.
He said the country’s money supply “exploded” during the pandemic as the federal government flooded the economy with cash. This caused asset prices to skyrocket, which in turn led to a surge in economic activity.
He and Johns Hopkins Fellow and former Invesco chief economist John Greenwood said annual inflation also hit a 40-year high last summer of more than 9%. Projected in July 2021.
Hanke said the Federal Reserve had “turned things around” since last spring. The central bank has raised the base rate from near zero to more than 5% and tried to shrink its balance sheet.
“The money supply has fallen like a stone, and is now contracting at -3.7% a year, which we haven’t seen since 1938,” he said.
A prominent economist has warned that a recession of this magnitude would likely hurt economic growth, saying: “We believe the recession is firmly entrenched and will begin in the first half of 2024. ‘ said.
Mr. Hanke also emphasized himself and Mr. Greenwood. expected in february Inflation is expected to drop to around 2% by the end of 2023. Inflation has already slowed to about 3% in recent months.
Additionally, the veteran currency and commodities trader pointed to a gap between the current 10-year Treasury yield of about 4.3% and the expected yield of 1.9% based on trends over the past 43 years.
“With lower inflation and a looming recession, we expect 10-year bond yields to fall and narrow the gap,” Hanke said.
Economists have been sounding alarm bells for stocks and the economy for some time.he warned In February, it said pressure on corporate earnings and production cuts didn’t bode well for stocks. warned Earlier this month, we reported that complacent investors were “sleepwalking” through market turmoil and recession.
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