An Ivy League professor who nailed the financial crisis says another 'colossal disaster' is on the way — and warns of a 50% market crash
," which focuses on investing. "I think the Fed's goal is to somehow deflate this whole mess, and somehow bridge asset prices right across the valley of death to get to the other side." This isn't the first time Collum's seen trouble brewing from a mile away. In 2002, he wrote a letter towarning of the nefarious activity taking place in subprime mortgage lending.
Collum's diagnosis of today's market is rather simple: Both stocks and bonds are in "monstrous" bubbles initiated by the Federal Reserve's lax policies.: Collum points to vast corporate excesses, swaths of borrowed cash used to fund stock buybacks, and extremely overstretched valuations to build upon his thinking.50% from the depths of the financial crisis. He contrasts that with how equity markets have more than quadrupled over that same time frame. He thinks this is a clear dislocation.
"They're supposed to track each other — among the many metrics — they're supposed to track each other. That's Buffett's favorite, right?" he said in reference to the US' stock market capitalization to GDP ratio. "Somethings out of whack." In addition, Collum says that the idea that low interest rates are bullish for equities is a misnomer. He says that rates are low because the economy is weak, and therefore don't justify lofty stock market valuations."My model is we're either going to have a very, very mean recession or I'm wrong," he said. "Regression to the mean is a 50% cut — and that'll destroy CalPERS, and that will destroy hedge funds .
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