Tiomkin, who advises some of the world’s largest hedge funds, believes central banks will be compelled to alter their interest rate policies in the near future as reported by Globes.
Market slide
Against the background of the collapse of the stock markets and the S&P 500 Index’s bear market slide, Avi Tiomkin, who advises some of the biggest hedge funds in the world, gives a surprising forecast: “Within four to five months, the US central bank reverses its policy and lowers the interest rate, because of a deep recession in the US and the entire world that will make all the inflation hysteria disappear,” Tiomkin says, speaking to “Globes”.
“The global economy is sliding into a very heavy recession, which the US is leading, and we can already see changes in the inflation process today,” Tiomkin says.
“Within a few months, the strength of the recession and the clear decline in the inflation process will oblige the central bank in the US, contrary to all the forecasts, to cut its interest rate and, very probably, to go back to quantitative easing.”
Tiomkin reiterates what he has said in the past, that the economic crisis of 2008 was never really resolved, but was temporarily resolved through interest rate cuts around the world, which were zero or even negative, and through fairly aggressive fiscal policy in most countries (that, according to him, was the correct policy).
Then, however, came the Covid-19 pandemic, wrecking all the global processes: “Even before the pandemic broke out, the US economy was on a weakening trend, and the European economies were almost in an effective recession,” he says.
Increased interest rate
“Covid-19 came along, and at one blow nearly $9 trillion was injected into the banking system by the central banks, distorting the world’s financial structure, the banking system, and the outlook of the decision-makers.”
The results were very low-interest rates and a huge bubble in the stock markets, manifest first and foremost in the technology stocks and the SPAC flotations.
Meanwhile, Tiomkin points out, the Chinese market has been in crisis for three years, “with a real estate market on the brink of disintegration and a banking system at risk of collapse,” as he puts it.
“The injection gave everyone a certain amount of air; it ended towards the end of last year, and the declines began even before the interest rate was raised, just because of the expectations, and that was even before the rise in energy and produce prices resulting from the Russian invasion of Ukraine,” he says.
And now, “with the US having stopped injecting budgets, the monetary system and the fiscal system have both started to deteriorate.”
“Signs of collapse in the US real estate market”
“We have reached a stage in which the markets start to react to every negative factor.”
There have also started to be clear signs of rises in stocks held by companies, putting pressure on the financial system, and clear signs of collapse in the US real estate market.
The US Homebuilders Index has fallen almost by half.
“The rise in prices itself puts a damper on economic activity,” he adds, “because it harms the public’s purchasing power.”
Tiomkin says that another factor that is affecting the economy negatively is that the savings accumulated during the Covid-19 lockdowns completely disappeared as soon as the global economy was opened up.
“Purchasing power is falling”
“All the economists in the world are terribly happy, because for thirty years they’ve been warning about inflation, and all the time the opposite happened,” Tiomkin says tartly, “and all of a sudden there’s a rise in prices.”
For inflation to continue, he says, the public’s purchasing power has to grow significantly, but in fact, the opposite is happening.
In the labour market, the indications are of people moving to part-time work, and layoffs in the high-tech industry as share prices collapse and flotations cease.
What about the supply chain difficulties?
“If there are problems, they are marginal and normal.
Within the past few months, the index of ship leasing prices has fallen by half, and that can be seen in stock prices in the sector, which give an indication of the general direction of maritime cargo.”
Real estate stocks: “Looking ahead, not a good picture”
“The stock and real estate markets are now at the crash stage, and react to whatever the central banks do.
“The number one factor that has supported the market in the past two years,” he adds, “is share buybacks by companies.”
Now, the financing costs of buybacks have jumped because of the interest rate, recession conditions are developing, and it is very likely that most companies will stop the buybacks.
“That will remove very significant support from the market.
Just since the beginning of this year, buybacks amounting to a trillion dollars have been announced.”
Real estate in Israel: “A danger to the banking system”
“If Israel enters a recession, then, just as in the US home prices reached a peak and are now starting to change direction, here too we’ll see a significant change of direction.
Incidentally, that is for the wrong reasons – not because there’s more supply, but because of a recession, and because the banking system will not be prepared to give mortgages to buyers.
If it’s sector-wide, there are 100,000 homes on which repayments are not being made, and it’s impossible to sell them.”
The big danger for the banking system is that it awarded mortgages on the basis of the values of the homes.
“The global weakness signals a hit to exports, and there’s no doubt that the rises in interest rates and the collapse in stock prices are affecting the public’s purchasing power,” he says and estimates that the Bank of Israel too will switch to a policy of cutting interest rates.
“High-tech distorted the national figures”
“Israeli high tech is facing an unprecedented problem,” Tiomkin adds, “since the expansion of the past two to three years created an incredible demand for people, and many companies with no basis for their existence were able to raise money due to the dramatic values that resulted.” “As soon as there are no more flotations, people’s employability and salary demand vanish totally.” This is crucial because high tech accounted for a large portion of the job growth. The high-tech figures affected Israel’s national statistics dramatically.”
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Source: Globes
