Michael Lewitt, author of the widely-read newsletter The Credit Strategist, warned listeners earlier this year on the dangers of negative interest rates and why such a policy amounted to “turning capitalism on its head.”
In a follow-up interview on Thursday, Lewitt noted that recent comments by Fed officials of possibly “going negative” in the US show how desperate the situation has become with growth weakening in the US, a global economy in trouble, and a whole host of geopolitical problems brewing overseas, he said.
“Something that didn't exist in 2008 but exists in a big way today is a very dangerous geopolitical [situation] throughout the world,” Lewitt said. “In addition to having financial fragility because of too much debt and too little growth, you also have severe geopolitical instability in Eastern Europe, the Middle East, and in the South China Sea—so you have a really toxic combination of destabilizing forces that really place markets at risk.”
Because of this and other factors, Lewitt believes that we are in the beginning stages of a bear market and cautioned listeners against buying stocks at current levels except for areas selling at deep discounts, which he cited.
Here are a few key excerpts from his recent podcast interview (preview below), which subscribers can access in full by logging in and clicking here.
Beginning Stages of Bear Market
“I actually do think we are in the beginning stages of a bear market. In the beginning of the year...I thought there would just be a correction and not a bear market but now based on what I've seen in terms of China, commodity prices, a weak US economy, the dollar—which I expect to continue to strengthen—I think that the bull market is effectively over.”
Rate Picture Tied to Strong Dollar Fears
"There are lots of reasons why the Fed isn't raising rates but I think the biggest reason is that they don't want to push the dollar higher more quickly than it's likely to go...in other words, the Japanese and the Europeans are likely to continue their QE programs and that will strengthen the dollar because it will weaken the Yen and the Euro. So, raising rates in the US would merely accelerate that and a stronger dollar is bad for corporate earnings, it's deflationary, and I think their reluctant to do it. So I think the stronger dollar is the biggest reason they're not raising."
Committee to Destroy the World
“We have a Fed that is complaining there is not enough inflation even though the price of everything that matters is going up. They don't know how to read the employment numbers [since] we have almost a hundred million people out of the workforce while they think that the unemployment numbers are rosy. We're in real trouble and then you have this one member of the Fed, Kocherlakota, from the Minneapolis Fed who thinks we should have negative interest rates. So you don't have much of a chance of having good policy when you indeed have a committee to destroy the world."
Listen to this full interview with hedge fund manager and noted author of The Credit Strategist Michael Lewitt by logging in and clicking here. For a complete archive of our broadcasts and podcast interviews on finance, economics, and the market, visit our Newshour page here or iTunes page here. Subscribe to our weekly premium podcast by clicking here.