The rallying markets aren’t as good as they seem, says Guggenheim Partners chief Scott Minerd. He likened inflation of asset prices caused by loose money policies of central banks to a ponzi scheme that eventually must collapse.
“We will reach a tipping point when investors will awake to the rising tide of defaults and downgrades,” Minerd wrote in a letter from the World Economic Forum meeting. “The timing is hard to predict, but this reminds me a lot of the lead-up to the 2001 and 2002 recession.”
He cited rising defaults despite a rally in riskier assets, and reiterated a warning that BBB-rated bonds risk further downgrades. The chief executive said that the type of debt is at a greater risk of deterioration than it was in 2007.
Guggenheim Partners, which operates in the global investment and advisory space, manages more than $275 billion in assets as of September last year.
The company’s fixed-income chief Anne Walsh told Yahoo Finance that 15 percent of the US economy is already in recession.
According to her, the Federal Reserve’s efforts to pump liquidity into markets has created “zombie companies” that may see an outflow of capital as the utility of that money continues to diminish. The longer that this market runs, the harder the fall will be when it ends, she said.