Tags: stocks | bonds | Tanous | Fed

Financial Adviser Tanous: Stocks and Bonds Headed for Meltdown

Thursday, 04 Apr 2013 08:25 AM

By Dan Weil

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The next three years will be disastrous for the stock and bond markets, thanks to the Federal Reserve’s massive easing program, says Peter Tanous, president of Lepercq Lynx Investment Advisory.

He lays out his nightmarish scenario as if looking back on things in a letter dated January 2016.

“For three years, the Federal Reserve was the largest buyer of Treasury securities, … driving interest rates down to practically nothing,” he writes in the letter, which appears on CNBC.com. “In the process, the Fed built up a $4 trillion dollar balance sheet.”

Editor's Note: Prophetic Economist Warns: “It’s Curtains for America.” See Evidence.

How did the Fed pay for those Treasurys?

“They ‘printed money,’” Tanous says.

“It took far too long for other purchasers of U.S. Treasurys to realize that they were buying into a house of cards.”

But finally foreign nations, such as China, stopped buying Treasurys.

“The stock market plummeted 35 percent in one week. Gold rose to a record $3,600 an ounce, and interest rates on the 2-year Treasury note spiked to 6.5 percent,” he writes in his letter from the future.

In Tanous’ history, first came a run on the bond market, as everyone sought to liquidate at once, and then came a run on the banks.

“What they did was to drive interest rates as low possible for as long as they could. Then the music stopped, the buyers realized they were being conned and the crisis began.”

So how did Tanous react? “I decided to move to Grand Cayman.

“But today economic and financial conditions are improving. Unemployment is down to 11 percent and the economy will improve to a [gross domestic product] of -3 percent this year.”

The quantitative easing (QE) that Tanous objects to may not go away anytime soon.

Fed Governor Daniel Tarullo tells CNBC that while some economic numbers have come in better than expected, he wants to see a sustained improvement in jobs data before the central bank cuts back on QE.

“At the very least what I’d like to see is some good healthy peaks that have job creation well above the rate of new entrants into the labor market, followed not by valleys that take back some of that progress but at the very least by a nice plateau that can be the basis for some more peaks later,” Tarullo explains.

As for the present, spot gold traded late Wednesday at $1,557, and the 2-year Treasury yield stood at 0.23 percent.

Editor's Note: Prophetic Economist Warns: “It’s Curtains for America.” See Evidence.

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