David Stockman, the so-called “Father of Reaganomics,” is at it again with his most recent prognostication of doom for Wall Street and the broader economy, even as the stock market tests fresh highs for the year.
The 72-year-old politician and businessman, who was the director of Office of Management and Budget under President Ronald Reagan in the 1980s, told Fox Business’s Neil Cavuto on Thursday that investors ought to get out of the market and retreat to the presumed safety of Treasury bills and cold, hard cash.
Here’s an exchange between Cavuto and Stockman during the nearly 8-minute segment, in which the businessman cautioned that the end of easy-money policies by the Federal Reserve would ultimately augur ill for a country hopped up on debt and boasting a growing trillion-dollar deficit:
Cavuto: When is that day of reckoning? I’d like to know
Stockman: I think we’re here. I think we’re here because the Fed stopped buying bonds two years ago.
Cavuto: What would you invest in?
Stockman: I think you get out of the market. The bond market, the stock market, put your money in cash, put your money in Treasury bills, wait for the collapse to come because it’s going to happen
Stockman has been a persistent doomsayer whose forecasts have yet to materialize. However, his White House and fiscal policy pedigree have made him a hard-to-ignore voice on the outlook for the market and the economy.
Stockman’s comments also come as market participants are increasingly worried slowing economic expansion outside of the U.S. will eventually wash up on American shores.
However, thus far the market has bounded higher after shaking off a withering decline toward the end of 2018 that culminated in the worst Christmas Eve drop on record. The Dow Jones Industrial Average DJIA, +0.65% is up 19.4% since that time, breaking above a psychologically significant at 26,000 level on Friday, while the S&P 500 index SPX, +0.55% has advanced 19.5%, the Nasdaq Composite Index COMP, +0.73% has risen 22.4% and the small-capitalization focused Russell 2000 index has returned more than 25%, according to FactSet data.
Much of that gain has been underpinned by a Fed that has signaled that it is likely to slow a reduction of its $4 trillion balance sheet as soon as this year and a willingness to wait before increasing borrowing costs further. Both of those plans had been cited as a source of friction for markets.
However, Stockman has said a yawning deficit and an economic expansion in the U.S. that is making history for its length are signs that a reckoning my be at hand. He says easy-money days cannot last and has ramifications for all, arguing that the Fed must normalize its policy, at some point:
“My point is, it’s finally catching up with us. We’ve gotten by with this for 30 years ‘cause the Fed has been monetizing the debt — buying bonds hand over fist. When Greenspan arrived, the balance sheet of the Fed was $200 billion; at the peak it was $4.5 trillion,” he told Cavuto, referring to former Fed boss Alan Greenspan.
“We need to wake up and smell the roses here. We’re in year 10 of the longest business expansion in history. We’re increasing the deficit at the very wrong time. They say it’s $900 billion this year it’ll be $1.2 trillion of borrowing at the same time that the Fed is beginning to shrink its balance sheet, which means they’ll be dumping bonds into the market,” he said. (Wednesday’s Fed minutes indicate that the Fed could end its balance-sheet reduction, or quantitative tightening, as early as the end of 2019.)
Check out the complete interview below:
Providing critical information for the U.S. trading day. Subscribe to MarketWatch's free Need to Know newsletter. Sign up here.
This post was originally posted at http://www.marketwatch.com/news/story.asp?guid=%7B59CEDA58-36B5-11E9-8528-D6898C6E826F%7D&siteid=rss&rss=1.