This was one of the cheery headlines that greeted me this morning (Friday March, 28 2014), proffered up by those fine folks at CNBC. The expert providing the fearsome warning was private equity guru, John W. “Jay” Jordan, II. Even though Mr. Jordan is a native of my home town, about my age and has had considerable success in the private equity business, I really had never heard of him until this morning. Nonetheless, it makes for the kind of heavenly hype that has become CNBC’s raison d’être.
So why is Mr. Jordan so bearish?
Why, it’s that darn Fed and its policy of Quantitative Easing (QE). It is government intervention in the free market setting of interest rates. He gives as an example of the failure of such policies, Paul Volker’s intervention back in 1981 and the fact that the Fed artificially moved rates on the 10-year Treasury to “14.5%” (actually the peak was 15.84%) and that caused the market to tank (S&P 500, at worst, down 17%, closing the year down 9%–not really a tank).
Most importantly, Mr. Jordan missed the point of why Paul Volker did what he did. He did it to kill inflation. It worked and the market loved it. The Bernanke/ Yellen Fed is trying to spark some inflation to move the economy forward. My caveat would be, be careful what you wish for. You just might get it in spades.
Finally, Mr. Jordan made a statement to the effect, when they start this taper we could have some real difficulties. I might point out to Jay that we have been tapering since January 1, 2014 and, as of yet, rates have gone down instead of up, and the market, accepting the valuation-challenged (Biotech, Social Media etc.), has not collapsed.
Why the hubbub? What, actually, did Jay have to say?
CNBC…Jay Jordan, founder of the Jordan company, issued the dire warning on CNBC’s “Squawk Box”, saying, “a 25% drop could extend to all asset classes.”
Jordan goes on to say, “There’s a big speculative bubble out there. You’ve seen it start in the emerging markets. It is already facing us. Their currencies are destroyed. Their GDPs are destroyed.” I would love to know what Mr. Jordan’s definition of ‘destroyed’ is.
He finished, and I think very appropriately by saying: “It hasn’t affected us yet, but it could very easily. I’m nervous about that. I may be wrong. I’m usually wrong about these things.” Don’t believe this. Check out the link provided in our sub-topic headline! This is ludicrous…where did they get this guy?
Somebody must have been asleep at the switch when Mr. Jordan was booked as a guest and when CNBC posted this. If you listen to the clip Mr. Jordan is really espousing a very, very strong opinion for a guy who is “…usually wrong about these things.” It is my hope this prediction does not break his streak.
What do you think?
P.S. Just goes to show you, just because you’ve made a lot of money and achieved great success, does not necessarily mean you are wise in all things.
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