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Guggenheim Chief Issues Dire Warning To Investors: “If There Were Ever A Moment To Harvest Gains… It Is August 2018”

Guggenheim Chief Issues Dire Warning To Investors: “If There Were Ever A Moment To Harvest Gains… It Is August 2018”

Guggenheim Partners’ Scott Minerd warned that the market rally is the “last hurrah” and “investors should sell now.” Here’s when Minerd says the crash is coming.

Scott Minerd is far from bullish on U.S. stocks and has issued a very strong warning to investors.

Minerd believes the market is underestimating the risk of a trade war and could see a major correction once it’s hit with “cold water in the face,” he said last month.

“Investors are just ignoring the consequences and what’s going to have to be done in terms of Federal Reserve policy to offset the inflationary pressure that’s going to come out of tariffs,” Minerd said.

The chief investment officer for Guggenheim Partners then took to Twitter on Tuesday to question why investors aren’t ditching stocks more broadly so far this month:

Minerd is concerned tariffs could result in higher inflation which could force the Federal Reserve to continue tightening, and could even force the pace of interest rate hikes.

He has also pointed to the flattening yield curve as a concern. The yield curve plots yields across debt maturities – in particular, the 2-year and 10-year Treasuries. As prices rise, bond yields fall and a flattening yield curve is considered a bad omen for the market as it implies an economic slowdown is around the corner.

Minerd has been sounding the alarm bell about the risk of a downturn for months and has said that the market “is on a collision course with disaster” with the worst of the damage happening in 2019 and 2020.

“The next recession is going to emanate from the corporate sector” where companies have the “highest debt load” in history, Minerd wrote in a note to clients in March. “There is likely to be a sharp decline in employment and a short decline in profitability, followed by widening credit spreads as the market discounts the expectation of higher corporate defaults.”

Corporate debt now sits at a record $8.8 trillion. And when short-term rates reach 3%, that’s when the problems will start, Minerd said.

Jim Rogers, founder of the Quantum Fund, also noted that high debt will harm the economy saying, “Debt is everywhere, and it is much, much higher now,” than ever before. Rogers also cautioned that “When we have a bear market, and we are going to have a bear market, it will be the worst in our lifetime.”

Then last month, Minerd cautioned that global trade conflicts—specifically between the U.S. and China—could create headwinds in the market. He said in a tweet last month that “Markets are crazy to ignore the risks and consequences of a #tradewar. This rally in #stocks is the last hurrah!”

“People are being confused by the idea that if you place a tariff on a foreign good that somehow that doesn’t pass through to domestic consumer,” Minerd said. He also pointed to washing machines as an example. When duties were imposed on washing machines earlier this year, prices of those machines jumped 17%.

But now, Minerd’s warning is that the period of stability we’ve been in, which is reflected by a stock market that’s nearing the longest bull run in history and an economic expansion that’s also looking like it’s in its late stages, may rapidly shift to a period of instability and unrelenting stock selling.

Minerd’s warning to investors may be one to heed, even if you believe there’s still room for the market to run – and he’s not the only name sounding the alarm.

Ben Bernanke, the former chair of the Federal Reserve, said while speaking at the American Enterprise Institute in June that the recent stimulus tax cut risks overheating the economy which could force the Fed to slam on the brakes to keep inflation in check.

“In 2020, Wile E. Coyote is going to go off the cliff and look down,” Bernanke said.

Another former head of the Fed, Alan Greenspan, agreed saying, “We are dealing with a fiscally unstable long-term outlook in which inflation will take hold.”

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