During his recent interview with Bloomberg Wealth, Cliff Asness explained why equities are a scary place for investors. Here’s an excerpt from the interview:
Asness: OK, first I got to give you the disclaimer. I am the quant geek long and short, so I don’t pretend to be a great macro economist. But of course it’s a backdrop.
And of course, we look at our strategies and we think about what macro economic environment are our positions implying we favor.
I don’t think the Fed had much of a choice. I think they were slightly behind the curve. My biggest concern and probably our firm’s biggest concern is stocks and bonds seem to be taking a very, very different view.
Bonds, whether it’s a risk premium or a forecast of future interest rates, if it’s a forecast of future interest rates, what’s priced into the short term curve is multiples, severe cuts over the next year to two years. That is a recession and not a mild one in the forecast.
Equities are kind of… I’m not saying it’s a graveyard, but they’re whistling past that. So that doesn’t mean bonds are right. Equities could be right. You could get the… what some people have called the immaculate deflation, where inflation comes down and then growth doesn’t suffer.
But if inflation stays sticky, or it comes down because we enter a non-trivial recession. It’s equities that I think are a scary place. They’re not priced very consistently with bonds and we’re gonna find out who’s right in the next year.
You can watch the entire discussion here:
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