The broader market has been rocked by volatility in 2022, with numerous worries indicating that there could be more volatility ahead. Similarly, investment manager and notable market participants Jim Chanos also sees more pain ahead as not many have considered that interest rates will continue to rise.
Speaking on Bloomberg’s “Odd Lots” podcast on Wednesday, June 15, Chanos explained his view on interest rates.
“That’s the one thing that people are not prepared for still, is interest rates resetting meaningfully higher, because it hasn’t happened in most investors’ lifetimes. The idea that actually interest rates are not going to be 2% or 3% for the foreseeable future is going to be hard for a lot of investors to deal with.”
Brewing up a storm
Chanos is adamant about blaming the Federal Reserve (Fed) for the current volatility as easier monetary policy was instituted in late 2018. Additionally, low-cost or free trading platforms helped fuel the speculation; with the addition of Special Purpose Acquisition Company (SPACs), which were raising billions daily, the investment world reached its peak bullishness.
“I’ve been kind of surprised since November, just how much retail investors continue to want to speculate. Cathie Wood was getting inflows for most of the first quarter, in some cases record inflows. For a couple of weeks, new SPACs were raising on average $3 billion in cash every night. <…> And that was equal to the US savings rate. So for a brief period, SPACs were taking the entire US savings rate, which struck me as the height of absurdity.”
“If you look at Coinbase’s first quarter in 2022, retail trading volume was huge compared to institutional. They earned almost a billion in commission revenues from retail traders during the quarter. And they earned less than $50 million from institutional investors.”
It seems as if there is no place to hide for market participants, as notable investors are coming out with claims that the current market conditions they have never seen in their careers.
It will be interesting to see how things develop and how aggressive the Fed gets to try and calm the markets.
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