The countdown to financial Armageddon is on — there are just over 50 nail-biting trading days until Sept. 17 and perhaps the Fed’s first rate increase since 2006, which could end in disaster, market analysts say.
Investors are moving into cash at record levels, “buying protection against this equity selloff” amidst talk of rate increases and a Greek default, according to Merrill Lynch.
“Higher cash levels show how caution is in the air, with 65 trading days until we expect the Fed to tighten,” Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research, said on June 16.
Despite skepticism elsewhere, Merrill is anticipating a hike of 25 basis points from near zero, a mild jolt that’ll be followed up later, say other analysts, with additional tightening. “A rate rise should come as no surprise,” said Michael Rosenberg, managing partner at Diversified Investment Strategies.
But the financial jury is still out on the final outcome. A rising chorus is on the side of sharp financial pain — a replay of the 1930s Great Depression, some say, when stock prices collapsed more than 50 percent after a series of ill-advised Fed rate hikes in the latter half of the 1930s.
Kathy Jones, fixed-income strategist at Charles Schwab, acknowledges the possibility of a nightmare scenario. Schwab also anticipates a September hike.
“In this particular case, we have a diverse set of factors to watch: the Fed moving towards monetary tightening, Europe embracing massive quantitative easing, a slowdown in Japan — and China affecting the rest of the world,” she told The Post. “It’s a mix of things that breeds volatility.”
Dick Bove, the veteran bank analyst at Rafferty Capital Markets, says this is a “classic black swan” with the Fed in the driver’s seat.
“They didn’t see it coming, they never thought about it, they never thought it possible every central bank in the world would move to ease monetary policy when the US wanted to tighten.”
But in rural Pennsylvania, 100 miles away from the shining skyscrapers and trading floors in lower Manhattan, a former margin regulator at the NYSE says the economic death spiral has begun.
None of this is obvious to the mavens on the Street, he says.
“These guys were talking about the market turning around three years ago, and I don’t see it,” said this former NYSE exec, Steven Levine.
Added Levine, now an industry consultant: “Where I live, people are taking two to three jobs just to make ends meet — it’s an economic quicksand trap.”
Bove doesn’t mince words. “Wall Street thinks it is prepared for it, but it isn’t,” he said.