‘Shock the market’: Wall Street’s original ‘Dr Doom’ tells Fed to toughen up

Financial Times/Gary Silverman/8-16-2022

graphic showing wolf in the middle of a flock of sheep all with their backs turned to the danger

“Forty years ago today, former Salomon Brothers economist Henry Kaufman helped start one of history’s great bull markets. Known then as “Dr Doom” for his bearish views, he roused investors by changing his stance and forecasting a fall in interest rates after a punishing Federal Reserve campaign to tame inflation.”

USAGOLD note 1: Unlike his forecast then, this one is not likely to win the hearts and minds of Wall Street’s elite. Different times. Different circumstances. Kaufman goes on to say that today’s Fed is behind the curve whereas the Volcker Fed was ahead of the curve. “Today, the inflation rate is higher than interest rates,” he points out. “Back then, interest rates were higher than inflation rates. It’s quite a juxtaposition.”

USAGOLD note 2: Those who predict a stagflationary course – one in which the Fed stays behind the curve for an extended period as rates and inflation rise in tandem – might be closest to the truth. It is interesting to note that the new Dr. Doom, Nouriel Roubini, stridently warns of a coming Great Stagflation. When it arrives, he writes in an essay posted at Project Syndicate, “both components of any traditional asset portfolio—long-term bonds and equities—will suffer, potentially incurring massive losses.” One should take care not to be lulled into a false sense of security.

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