Tags: Fleckenstein | Tapering | Stock. Crash

Money Manager Fleckenstein: Tapering Will Spark Stock Crash

By    |   Wednesday, 21 May 2014 07:00 PM

Stock markets will crash as the Federal Reserve withdraws its stimulus, predicts money manager Bill Fleckenstein.

The Fed has boosted stock markets in recent years by keeping interest rates low, but "overdid it" and will be unable to remove its monetary stimulus without markets dropping, he tells CNBC.

"The world is printing money like mad, but we're not getting any GDP growth ... there's no way there won't be a big move to the downside at some point."

Editor’s Note: 5 Shocking Reasons the Dow Will Hit 60,000

Recent drops in the Nasdaq Composite and Russell 2000 may foreshadow other major stock indexes.

"I think maybe the S&P 500 and Dow are going to join them on the downside," he said. "I think that's an early warning salvo that the market is heading lower."

The stock market could collapse when the Fed next reduces its asset purchases or at a later date, Fleckenstein warns, saying the exact timing is impossible to predict.

"I know the Fed cannot get to zero and have the market not be disturbed."

On the other hand, markets could rally if the Fed delays its scheduled tapering, he adds.

The current Fed is much like the central bank under Alan Greenspan that caused markets to rise by holding rates low, then prompted stocks to crash when it finally increased rates, according to Fleckenstein.

The central bank began tapering its purchases of long-term bonds, which had reached $85 billion a month, at the end of last year. As of this month, it was purchasing $45 billion of bonds on month and planning to continue reducing purchases by $10 billion a month, notes CBS News. It has emphasized that it will keep its federal funds rate low for an extended time even after winding down its purchases of long-term bonds.

"We know that tapering will continue," Heinz-Gerd Sonnenschein of Deutsche Postbank AG told Bloomberg. "Companies that close their quarter later than March show an improvement from the beginning of the year, which suggests that activity was only weak because of the winter weather. Maybe investors are a little more cautious now with markets trading near records, but the mood is still positive."

Editor’s Note: 5 Shocking Reasons the Dow Will Hit 60,000

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Stock markets will crash as the Federal Reserve withdraws its stimulus, predicts money manager Bill Fleckenstein. The Fed has boosted stock markets in recent years by keeping interest rates low, but overdid it and will be unable to remove its monetary stimulus without...
Fleckenstein, Tapering, Stock. Crash
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2014-00-21
Wednesday, 21 May 2014 07:00 PM
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