Steve Hanke told Insider that stocks look “very expensive” and a recession is “just around the corner.”
The Johns Hopkins University professor predicts an economic recession in the first half of next year.
Hanke sees inflation subsiding, 10-year Treasury yields falling, and home prices staying afloat.
Stocks look expensive, and a recession is likely next year, says Steve Hanke.
The risk of holding stocks rather than government bonds is usually offset by their superior expected returns.
However, Treasury yields have swelled and stock prices have risen in recent months, producing negative results equity risk premium Stocks are set to yield a lower return than bonds despite being riskier assets.
“This is unusual and indicates that stocks are very expensive,” Hanke told Insider.
The professor of applied economics at Johns Hopkins University is best known for being the chairman of the Toronto Trust Argentina when it was the world’s best-performing mutual fund in 1995.
As for the housing market, Hanke pointed out that there is Shortage of homes for sale. He attributed this to a limited inventory of existing homes, and more than 15 years of insufficient new home construction. As a result, he indicated that the unmet demand would be so Price support.
Hanke, a former economic advisor to President Ronald Reagan, also explained to Insider why he expects growth to falter in the United States.
He noted that the country’s money supply “exploded” during the pandemic as the federal government flooded the economy with cash. This led to higher asset prices and, later, higher economic activity.
Annual inflation also reached a 40-year high of more than 9% last summer, said Prof. John Greenwood, fellow of Johns Hopkins University and former chief economist at Invesco: Expected in July 2021.
Haneke said the Fed has “turned things around” since last spring. The central bank raised the benchmark interest rate from almost zero to 5%, and worked to shrink its balance sheet.
“The money supply is falling like a stone, and is currently contracting at an annual rate of 3.7% – something not seen since 1938,” he said.
The famous economist warned that a decline of this magnitude is likely to stifle economic growth: “We believe that a recession is ripe and will begin during the first half of 2024.”
Moreover, the veteran currency and commodity trader pointed out the gap between the current 10-year Treasury yield of around 4.3%, and the expected yield of 1.9% based on its trend rate over the past 43 years.
“With inflation falling and a recession just around the corner, I would expect 10-year yields to drop and the gap to close,” Hankey said.
The economist has been sounding the alarm about stocks and the economy for some time. he to caution In February, pressure on corporate earnings and shrinking production did not bode well for stocks, and to caution Earlier this month, complacent investors were “sleepwalking” into market turmoil and recession.
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