- Harley Bassman claims that the American economy will capitulate and enter a recession next year.
- The Wall Street veteran expects stock and home prices to fall as unemployment and mortgage defaults rise.
- Bassman once ignored “The Big Short” star Steve Eisman’s warning about the mid-2000s price bubble.
A recession will hit the U.S. economy next year, hitting stocks and home prices, a Wall Street veteran has warned.
Harley Bassman, managing partner of Simplify Asset Management, offered a bleak forecast during a recent Rosenberg Research webcast.
Bassman spent more than 25 years at Merrill Lunch and worked at both Pimco and Credit Suisse. He compared inflation to carbon monoxide and recalled that he once ignored a warning from one of the stars of “The Big Short” about the mid-2000s housing bubble.
Here are 7 of Bassman’s best quotes, lightly edited for length and clarity:
1. “Inflation is nothing more than a default slowdown. It’s a nice tax, nice in the sense that it’s quiet and quiet. It’s a bit like CO poisoning in your house. You don’t feel it and it affects everyone.”
2. “Apartments will not disappear because there are no sellers. Everyone is locked in their homes. It’s some weird form of rent control where you can’t move unless your house burns down because you can’t refinance at 7%. You already have a mortgage at 3%. That’s why prices don’t fall. Until people lose their jobs, lose their income, they will stay in their homes.
3. “The Fed will continue to tighten policy until it raises the unemployment rate, or at least until then it lowers rates. When that happens, you will lower housing prices and the stock market will fall.” (Bassman predicted that asset prices would fall as people began to lose their jobs, default on their mortgages, and stop saving money in retirement accounts.)
4. “The Fed told us, ‘Inflation we don’t like, we’re going to hit the brakes until something breaks,’ which is the economy. When this happens, bad things will happen to your loans. default values by definition. This is what it looks like.
5. “I think we’ll have a recession next year. The Fed is already done or almost done. We will reduce inflation, but this will take a year, because we have not yet addressed the maturity barrier. So I predict it won’t happen until sometime, at best, the middle of next year. (Bassman emphasized the fact that many companies will have to refinance loans at much higher interest rates next year).
6. “I once served on the finance committee of one of our children’s schools. There was this crazy guy named Steve Eisman who was involved in it. I remember him walking in there one day and saying, “You work at Merrill, right?” I’m coming, yes. “I have some advice for you.” What is this? “Sell everything or you’ll go bankrupt.” And I didn’t listen to him. It was a mistake. (Steve Carrell played a character named Mark Baum in “The Big Short,” based on Eisman.)
7. You may be against immigration. You can close the door and no one comes in. But let’s be clear: If you slam the door, you will create inflation and you will have a slower GDP because you will have fewer workers.”
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