Kevin Smith, Crescat Capital’s chief investment officer, is convinced that the current stock market mania is driven by reliance on eased monetary policy by the Fed, and is far away from the economic reality. It’s most obvious in the difference between massively strengthening stocks and a dramatic decline of the U.S. economy caused by the coronavirus pandemic. “The recession has only just started,” Smith said and pointed out that even according to Warren Buffet, it’s time for short positions.
Smith says that it’s important to realize that “markets driven by euphoria never end well” and “the U.S. stock market is in la-la land“. US stock market does not correspond to fundamentals, and it will soon be even more obvious. In the past, the Federal Reserve system showed it was prepared to support economy by quantitative easing, which is a way to inject liquidity into the economy by purchasing securities. It usually concerns government bonds, yet purchasing corporate bonds is an option, too. In such case, many investors can speculate on the Fed’s monetary policy and start purchasing shares, while expecting their future price growth. We will soon find out whether these concerns are justified.