Hedge fund manager says Biden’s spending plan could pop stock market bubble
Biden’s plan to stimulate the economy could cause a market crash like in 1929
According to one hedge fund manager, President-elect Joe Biden’s plan to spend on economic aid amid the Covid-19 pandemic could recreate the financial conditions seen in the run-up to the Wall Street crash in 1929, with rising inflation that could potentially cause the “epic Stock market bubble.
David Neuhauser (David Neuhauser), managing director of Livermore Partners, said Biden’s spending plan appeared to be an attempt to mimic «turbulent 20s», quickly bringing people back to the labor market.
«But be careful, «stormy 20s» (roaring 20′s) led to the 1929 stock market crash and the Great Depression. So be careful what you wish for», – he added.
If passed by the new Democratic-controlled Congress, «America’s salvation plan» (American Rescue Plan) will include $ 1 trillion in direct assistance to households, $ 415 billion to fight the virus, and an estimated $ 440 billion for small businesses.
«We have not only an economic need to act now – I believe that this is our moral obligation», – Biden said Thursday after announcing a stimulus plan from his Delaware headquarters.
The inauguration of the former vice president will take place on January 20.
Asked whether investors should be concerned that the president-elect’s spending plan could lead to events such as the 1929 stock market crash, Neuhauser replied: «I think yes».
«We are seeing this huge $ 1 trillion deficit due to the pandemic that has of course brought the world to a standstill in the past nine months, and the goals are of course the following: «We’re going to get the vaccine (and) we’re going to get through this», – Neuhauser told CNBC «Squawk Box Europe».
«We still do not know the dynamics of how successfully and quickly we will overcome this. We also don’t know what global growth will look like in the coming years.».
After the stock market crash on October 29, 1929, the S index&The P 500 fell 86% in less than three years and was unable to reach its previous peak until 1954.
Neuhauser cited expectations that U.S. GDP could grow 6% in 2021, but warned that growth is likely to normalize at a rate of 2% to 3% in the coming years. According to him, the demographic situation in favor of an aging population in the United States and the huge corporate and government debt also means that it is likely to be very «hard way».
However, Neuhauser’s point of view is not a consensus. James Sullivan (James Sullivan), JPMorgan’s head of research for Asia and Japan, told CNBC on Friday that Biden’s plan was more than double the bank‘s expectations.
So it became «positive surprise» for the market as well as for the general levels of US economic growth in the coming years.
US stock futures dropped Friday morning, Dow Jones industrial index contracts fell 89 points, while S&P and Nasdaq traded in negative territory. Major US indices are currently closing lower since the beginning of this week.
However, the Dow and Nasdaq both registered new all-time intraday highs in the previous session, while the S&P closed about 0.81% below its all-time high.
«The market is trying to figure out which narrative it should stick to. And over the past nine months, almost in a straight line, it has grown in the stock markets», – said Neuhauser.
«I think what ultimately happens is that (there) so much will be built into the market, and (we) will eventually start seeing inflation factors. These are the things that could ultimately implode this epic bubble.».
Earlier this week, data showed that US consumer prices rose in December on the back of rising gasoline prices, but core inflation remained relatively subdued. The US Labor Department said Wednesday that the consumer price index rose 0.4% last month after rising 0.2% in November.
In the 12 months to December, the CPI rose 1.4% after rising 1.2% in November. The numbers were broadly in line with economists’ expectations.