- Michael Burry, Elon Musk, and Jeremy Grantham foresee potential pain for stocks and the economy.
- “Black Swan” specialists Nassim Taleb and Mark Spitznagel also see a tough road ahead for investors.
- Rising interest rates are exerting pressure on US asset prices and the economy.
Michael Burry, Jeremy Grantham, and Elon Musk are bracing for stocks to tumble and the US economy to slump into recession.
“The Black Swan” author Nassim Taleb and Universa Investments’ Mark Spitznagel, who specialize in protecting portfolios against unpredictable events with extreme impacts, also expect asset prices to plummet and a painful downturn to take hold.
Here’s a roundup of these 5 experts’ latest warnings:
1. Michael Burry
Burry is one of a handful of people to predict and profit from the collapse of the mid-2000s housing bubble. He tweeted a single-word message to investors this week: “Sell.”
The fund manager of “The Big Short” fame has compared the S&P 500’s rebound this year to the benchmark’s short-lived rally during the dot-com boom. He’s previously cautioned the index could plunge over 50% from its current level to below 1,900 points, and suggested a multiyear US recession is a virtual certainty.
2. Jeremy Grantham
Grantham acknowledged the significant scale of the market selloff last year in his latest research note, but noted the pain may not far from over.
“While the most extreme froth has been wiped off the market, valuations are still nowhere near their long-term averages,” the market historian and GMO cofounder said.
“If something does break and the world falls into a severe recession, the market could fall a stomach-turning 50% from here,” he continued. “At best there is likely to be at least a further modest decline.”
The veteran investor said the S&P 500 would most likely drop 23% to around 3,200 points this year or next, and spend some time below that level. He also suggested the index could plunge 50% in real terms from its peak at the start of 2022.
3. Elon Musk
Musk raised the prospect of a severe economic downturn during Tesla’s latest earnings call, and warned fear could send stocks spiraling downward.
“We’ll probably have a pretty difficult recession this year,” he said. “When there’s a recession and people panic in the stock market, then the value of stocks can drop sometimes to surprisingly low levels.”
The Tesla, SpaceX, and Twitter CEO has advised people to navigate the tough road ahead by conserving cash, avoiding debt, and taking fewer risks.
4. Nassim Taleb
Stocks soared after the financial crisis due to near-zero interest rates, which made it easy for companies to fuel their growth with cheap debt, and secure inflated valuations from cash-rich investors with few better options. However, the Federal Reserve has now hiked rates to nearly 5% in a bid to curb historic inflation, worsening the market backdrop.
Taleb, a Universa adviser and statistics guru, made that argument to Bloomberg this week.
“The stock market is way too overvalued for interest rates that are not 1%,” he said. “I think that we may have a collapse in many, many prices.”
“It doesn’t rain money anymore,” Taleb continued. “Disneyland is over.”
5. Mark Spitznagel
Spitznagel predicted massive economic and financial fallout, after years of freewheeling government spending and rock-bottom interest rates.
“It is objectively the greatest tinderbox-timebomb in financial history — greater than the late 1920s, and likely with similar market consequences,” he said in a letter to investors viewed by Bloomberg.
The Universa chief, who previously ran the now-defunct Empirica Capital hedge fund with Taleb, warned of a looming downturn that could have disastrous consequences.
“The correction that was once natural and healthy has instead become a contagious inferno capable of destroying the system entirely,” he said.