Guggenheim Partners’ Scott Minerd says “It’s time to start thinking of selling things.”
The co-Founder and Global Chief Investment Officer sees a recession ahead. “We’re pretty much on track for a recession in the first quarter of 2020.” To prepare, Minerd says it’s risk-off. even though “the stock market will probably go up another 10% to 20% from here.”
“History shows us that two years before a recession, that the stock market continues to rise because earnings are going up,” he said. “And that’s a chance to start selling now.”
All of this would come as the Federal Reserve continues to raise interest rates.
“I often joke that the Federal Reserve is the source of and solution to every crisis,’ he said. “I tell people business expansions don’t die of old age. The Fed takes them out back of a shed and shoots them in the head. And it’s because they have this mandate, which is that they can’t allow inflation to rise, and they have to reach full employment. We’ve already reached full employment. Matter of fact, we’re well beyond it.”
For the Fed, employment isn’t an issue. But inflation is.
“They’ve already fulfilled their full employment mandate,” Minerd said. “Now they’re preoccupied with prices. And so until they see a break in the price rises, which we don’t see in sight, they’re just going to keep raising interest rates until the economy basically slows down, which means we get a recession.”
Minerd warns of idiosyncratic risks that “not even I can predict” will hit the markets.
“A good way to think of it is because it’s peculiar,” he said. “It comes out of the dark at you. And in 1987, the Federal Reserve was raising interest rates. And out of the blue, we got a stock market crash. In 1997, the Federal Reserve was raising interest rates, and then we got the Asian crisis.”
He thinks selling stocks and starting to move into high quality government or government guaranteed securities is an “insurance policy” for investors.