Eric Peters, Chief Investment Officer (CIO) of One River Asset Management, discussed interest rates with an anonymous CIO of another prominent hedge fund. The anonymous CIO believes the Fed will raise interest rates past 6% and will continue raising rates until his ultra-high-net-worth clients are "terrified" their portfolios won't rebound. Ultra-high-net-worth individuals hold more than $100 million and are called centimillionaires.
There are 25,490 centimillionaires globally, representing 0.00003% of the global population. Peter's companion is unknown. Still, the company he keeps reveals his sphere of influence. Peters manages assets for some of the wealthiest people on earth. One River Asset Management has only ten clients totaling around $3.64 billion in assets under management. The average account size managed at One River Asset Management is $363,697,464.30. Funds managing billions for elite clients have insider knowledge and are incredibly well-connected. The world should reflect on what he is saying because he is saying things are going to continue getting a lot worse than in 2022.
The S&P500 lost 19.5% in 2022, but ultra-wealthy investors didn't feel the sting like everyday investors. According to Bloomberg's billionaire index, 75% of the wealthiest investors increased their wealth in 2022 by at least $100 million, whereas, on average, everyday Americans lost -18.2% of retirement savings in 2022. The CIO believes the Fed will raise interest rates until these elite investors feel significant pain and have no hope that their portfolios will rebound. It is a long road from increasing net worth by $100 million to feeling there is no hope and the portfolio losses will be permanent.
Some ultra-high-net-worth individuals had losses in 2022, but most losses were nominal and concentrated among a small handful of investors. Bloomberg reported that the 500 wealthiest people lost a total of $1.4 trillion in 2022. Elon Musk, Jeff Bezos, Mark Zuckerberg, and Binance founder Zhao Chanpeng lost a total of $392 billion. Speaking about his client’s investment losses, the CIO said, "They're slowly bleeding, but even after last year are not yet scared [sic]. Powell won't finish tightening the tourniquet until he terrifies these guys. They need to feel like their portfolios won't come back. They need to see their liquid portfolios lower still. They need to take losses to raise liquidity. It happens every cycle. We are clearly [sic] not there yet."
What does it mean?
There is noise, and there is truth. Most days, the media is more noise than the truth. For almost a year, the pundits have told us the Fed would pivot, and they continue to be wrong.
The CIO is speaking the truth, and it is getting lost in the noise. Chairman Powell has repeatedly said the Fed will raise rates as high as needed to get the job done. Heed his warning. Also, he refuses to make the same mistakes Chairman Volker made to control inflation in the 1970s. According to Powell, the mistake Volker made was giving in to pressure to slow down raising rates instead of charging full steam ahead.
There are two good reasons to believe the Fed will significantly raise rates higher than analysts and TV pundits expect: history and greed. History has shown that to get inflation down to the target rate; the Federal interest rate needs to climb above the inflation rate . The current CPI is 7.1%, and the current federal interest rate is 4.25-4.5%. To effectively get the 2% inflation target, history says interest rates still need to climb another 4-5%, more than double what has already risen. Chairman Powell said we should expect more stock market losses from previous raises. More losses are coming from previous hikes, and more coming from future hikes will be higher than the 5.1% market prediction. The anonymous hedge fund manager says it will be at least 6%. History says, "protect yourself."
Greed will also keep the Fed from pivoting. In October, we explored the reverse repo market and the $2.4 trillion reasons the Fed will not pivot. During periods of loose monetary policy, the Fed tries to flood the system with cash.
It becomes a game of musical chairs figuring out where the cash is. However, when the Fed controls all the cash and raising interest rates drive down asset prices, the Fed can drive prices down to nothing and flood the system with cash driving up the prices. The Fed can destroy asset prices, get all the cash, and control when the markets rebound. The Fed can control the exact moment of the market bottom. Before infusing the cash from the reverse repo market, the Fed will try to grow the reverse repo market as large as possible. The larger the reverse repo market, the more money the bankers will make, and the less you will have. Since then, the reverse repo increased another $155 billion to a record $2.55 trillion. The Fed created nearly $7 trillion during the pandemic. There is still a long way to go before the bankers can steal all the money.
The comments by the anonymous hedge fund manager make much sense. The Fed will destroy wealth until the wealthiest investors get their cash out of the system and fill up the reverse repo kitty with a few more trillion dollars. The Fed will buy assets at dirt-cheap prices when the reverse repo kitty is full. Then, the Fed will pivot and infuse trillions into the system, and all those dirt-cheap assets will skyrocket, establishing multi-generational wealth for the bankers and those in the know.
Decide if that is truth or noise.
If it is true, it makes sense to transfer a percentage of your wealth to tangible assets like precious metals before it's too late.
Ask your precious metals specialist how to protect your retirement accounts from the tightening tourniquet today.