Expert who called the 2008 crisis says the signal to sell stocks is coming soon – MarketWatch

April 27, 2020

It is the start of a bumper week of U.S. corporate earnings and one that will tell us more about the devastating impact of coronavirus on the economy.

The busiest week of earnings season will see Alphabet
GOOG,
+0.39%
,
Amazon
AMZN,
+0.87%
,
Apple
AAPL,
+0.25%
,
Tesla
TSLA,
+9.83%
,
Boeing
BA,
-1.47%

and Exxon Mobil
XOM,
-2.18%

all report results.

In our call of the day, former Goldman Sachs hedge-fund manager Raoul Pal said the dollar was the world’s “biggest problem” and that the signal to sell equities was coming soon.

He said the narrative that the Fed printing money would causes a dollar collapse was “very wrong.”

The chief executive of Global Macro Investor, who predicted the 2008 financial crisis, said: “You see the biggest problem the world faces is the dollar. We are in a viscous doom loop where slowing growth causes the dollar to rise, which causes slower growth, which causes the dollar to rise, as all borrowers play musical chairs to get access to the dollar to service debts.

“Dollar swap lines, QE, jawboning, etc. have done nothing to stop this,” he added in a post on Twitter.

Grab Our Last Puzzles and Activity Books on Amazon !

He said no printing of money — by the Federal Reserve — would solve what he described as a “structural” problem. “All attempts to create more money to solve the dollar standard issue tend to devalue all fiat versus gold. Gold is rallying on debt deflation probabilities.”

“My guess is that the next debt deflation signal will come when bonds begin to price in negative interest rates. That day is coming soon… and that will be the signal to sell equities and the insolvency phase will begin.”

The stat

Investors are giving companies a pass on earnings, according to Bespoke Investment Group. More than 200 companies have reported first-quarter earnings in the past two weeks and stocks missing earnings per share estimates have seen a one-day decline of 0.72% on their “earnings reaction days.” Historically, stocks missing EPS estimates have fallen 3.56%.

The markets

The Dow Jones Industrial Average
DJIA,
+0.68%

closed 260 points higher on Friday, ending the week 1.9% down, and was set to open higher on Monday at the start of a big week of earnings. Dow futures
YM00,
+0.62%

were 0.9% up, while S&P 500 futures
ES00,
+0.85%

were 0.9% higher and Nasdaq futures
NQ00,
+1.13%

were up 1.2%. Asian markets
ADOW,
+2.28%

gained after the Bank of Japan lifted its ceiling on purchases of Japanese government bonds and promised to increase purchases of corporate debt. European stocks
SXXP,
+1.25%

followed higher as Italy — once the continent’s epicenter of the virus — began relaxing lockdown measures.

The buzz

The U.S. economy will start to recover in the third quarter after a period of reopening in May and June, Treasury Secretary Steven Mnuchin said on Sunday.

Bill Gates says the key for reopening the U.S. economy is testing, testing, testing. The Microsoft co-founder said mass testing and contract tracing was essential to stop a second outbreak.

Sportswear giant Adidas said net profit fell 95% in the first quarter and warned it would be even more severely hit by the coronavirus pandemic. Sales fell 19% €4.75 billion.

A New York hospital has launched a trial testing heartburn medication as a treatment for COVID-19.

The bumper week of U.S. earnings begins in earnest on Tuesday with Dow pharmaceutical giants Merck and Pfizer reporting in the morning, while 149 members of the S&P 500 will report financial results this week.

The Spanish lockdown has ended for the population’s youngest members, as restrictions on children leaving the house were finally lifted over the weekend.

British Prime Minister Boris Johnson returned to work on Monday after recovering from a stint in hospital with coronavirus. Johnson delivered a speech to the nation outside Downing Street and warned the country had reached “the moment of maximum risk” but was passing through the peak.

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. Be sure to check the Need to Know item. The emailed version will be sent out at about 7:30 a.m. Eastern.

Follow MarketWatch on Twitter, Instagram, Facebook.

Click here to add a comment

Leave a comment: