- Wall Street is concerned about signs of stress in the markets and financial system.
- Tumbling assets, economic tensions and dysfunction in the UK are raising red flags.
- Here’s what Jamie Dimon, Cathie Wood and 5 other experts say about where things might go wrong.
Fears that markets are on the verge of collapse are mounting on Wall Street – and influential investors and pundits like Jamie Dimon, Cathie Wood and Larry Summers have pointed to where an explosion in the financial system could occur.
Signs of stress in the system are mounting, from sudden asset movements to growing threats to economic stability to runaway fears of distress at big banks like Credit Suisse. Political disorder in the UK has exposed the risks of government bonds and pensions, normally seen as safe havens.
“We see multiple standard deviation moves in things like the Swedish krona, Treasuries, oil, silver, like every other day. These are not healthy movements,” Alpha Theory Advisors’ Benjamin Dunn told CNBC.
Many strategists are blaming the Federal Reserve’s aggressive campaign to cool inflation by raising interest rates at an unprecedented pace. That has sent bond yields soaring and the dollar to 20-year highs – creating economic strains that are spilling over into markets.
Here are 7 top experts who think something might break:
Jamie Dimon, CEO of JPMorgan: Credit markets, ETFs
“You saw it with the Gilt markets here. You see a lack of liquidity in many markets. … It’s going to happen,” Dimon said at a conference in London.
“The place where you’re likely to see more of a rift and maybe a little more panic is in the credit markets. And it could be ETFs, it could be a country, it could be something you don’t suspect.
“If you make a list of all the previous crises, sitting here we wouldn’t have predicted where they came from, although I think you could predict at this point that it’s likely to happen. So if I were out there, I would be very careful.”
Scott Minerd, Global CIO at Guggenheim Partners: Stockse.gmerging markets
“They’re going to push until something breaks,” Minerd said recently, speaking about the Fed.
“I think the breakthrough will probably come through stock prices, but it could come in other places too – it could come in emerging markets.
“Eventually this will end in tears.”
Cathie Wood, Head of Ark Invest: financial services sector
“There are also signs that there are problems in the financial services sector. We’ve watched money center banks’ credit default swaps double and triple, and you know, in Europe they’re at all-time highs,” Wood told CNBC.
“So there are tensions and strains in the financial system that I think are starting to show, first with the LDI crisis in the UK. And the reason is that we are going through a major financial shock.”
Mohamed El-Erian, Allianz Chief Economic Advisor: Zombie company, revenue
“Zombie companies have a much harder time getting funding. And when they get refinancing, the cost of refinancing makes the numbers look very different,” El-Erian told CNBC last week, referring to over-leveraged companies making ends meet.
“Then you can go to various investors who are heavily indebted, that’s going to be a problem.”
“The Fed is so late that it’s likely to break something on the way to curbing inflation,” El-Erian said in a separate interview with CNBC.
“The most likely casualty is economic growth. I think the market is starting to realize that the risk of a recession and the impact on earnings is an issue.”
Larry Summers, former US Treasury Secretary: Global Economy
“What has happened in the UK – some of it is a self-inflicted wound, but some of it is shocks from what is happening in the global system,” he told the annual meeting of the Institute of International Finance on Friday.
“And when you have tremors, you don’t always have earthquakes, but you should probably think about seismic protection.”
Ed Yardeni, President of Yardeni Research: emerging markets
“I think it’s already breaking. What is breaking is the rising dollar,” Yardeni told Bloomberg, also citing the Fed’s rate hike campaign.
“A rising dollar has historically been associated with the emergence of financial crises on a global scale.
“We have to look at all of this from a global perspective and this tight monetary policy here has huge implications for the rest of the world, especially in emerging markets.”
Kamakshya Trivedi, Head of Global FX Research at Goldman Sachs: emerging markets
“In some of the more vulnerable corners of emerging markets, where there is a significant amount of dollar-denominated debt, there is already a debt crisis,” Trivedi said on a podcast.
“That’s where you need to look for the real debt problems that are starting to take place.”