‘Big Short’ investor shared a grim market outlook Saturday.
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Danny Moses blasted the Fed for inflating asset prices for years and encouraging risktaking.
The ‘Big Short’ investor predicted the stock market wouldn’t bottom until meme stocks plummet.
Moses also called out auditors and passive funds, and trumpeted gold’s outlook.
“The Big Short” investor Danny Moses has accused the Federal Reserve of inflating asset bubbles for years, predicted the era of easy money is over now, and offered advice for navigating the current market downturn.
The former FrontPoint Capital lead trader said Saturday that the loose central-bank stance favored by Federal Reserve Chair Ben Bernanke after 2008 set the precedent for the expansionary policies that inflated a raft of asset bubbles in recent years, and brought us to this moment.
“You can curse [current Fed Chair Jerome] Powell all you want but it was Bernanke that acted in a manner that has led us here,” Moses tweeted, referring to former Fed chief Ben Bernanke.
“Leverage was encouraged, stocks traded as risk free instruments, hubris ran wild and it all helped create a generation of investors and traders who were never forced to do bottom-up research,” he noted.
Moses also accused auditors of allowing companies to report misleading financials, and passive funds of making investors complacent. He added that he didn’t think the stock-market rally was warranted in the fourth quarter of 2021, as inflation was starting to rear its head, and he didn’t appreciate at the time how much money had flowed into markets.
He advised investors against betting on the Fed “blinking” and reversing course on interest-rate hikes, which would likely send asset prices higher. He recommended investors focus on stocks’ current valuations, not how much they’ve slumped in recent months. Moreover, he asserted that the Fed is going overboard in fighting inflation, but its efforts have exposed how fragile markets have become.
Moreover, Moses rang the alarm on the amount of borrowing in the economy, and warned the easy-money era is over due to concerns about government debt levels.
“Debt/leverage is almost always at the root of every financial crisis & we have lots of it at the sovereign/corporate/consumer level,” he tweeted. “The ability of Central Banks to just ‘print’ their way out of problems is now behind us as investors look at the underlying fiscal health.”
Moses also trumpeted gold’s prospects, and predicted high-quality stocks would fall to bargain prices. Moreover, he suggested the collapse of retail investors’ favorite stocks including Tesla, GameStop, and AMC could mark the end of the market downturn.
“Meme stocks were the poster children of this cycle,” he tweeted. “I’ll know we’re near the market bottom when it finally cracks (we are getting closer).”