“Too many investors are convinced that when the economy sours, the Federal Reserve will intervene with monetary stimulus measures and save the day by pumping up stock prices, economist and fund manager John Hussman said.
Monetary tools like interest-rate cuts or liquidity injections aim to jolt the economy and steer it away from decline but don’t make fundamental improvements to the country that are needed for lasting growth, such as fiscal reform.
“So what do I worry about? I worry that investors forget how devastating a deep investment loss can be on a portfolio,” Hussman wrote in a letter to investors. “I worry that the constant hope for central bank action has given investors a false sense of security that recessions and deep market downturns can be made obsolete.”Twitter