A recession will hit next year, hammering stock prices and home values, Wall Street veteran predicts

A recession will strike the US economy next year, pummeling stocks and house prices, a Wall Street veteran has said.

Harley Bassman, the managing partner of Simplify Asset Management, issued the bleak forecast during a recent Rosenberg Research webcast.

Bassman spent more than 25 years at Merrill Lynch, and has worked at both Pimco and Credit Suisse. He compared inflation to carbon monoxide and recalled that he once ignored a warning from one of the investors in “The Big Short” about the mid-2000s housing bubble.

Here are Bassman’s 7 best quotes, lightly edited for length and clarity:

1. “Inflation is nothing more than a slow-motion default. It’s a nice tax, nice in the sense that it’s quiet and silent. It’s kind of like CO poisoning in your house. You can’t feel it, and it goes across everybody.”

2. “Housing is not going to go down because there’s no sellers. Everyone is locked into their house. This is some weird form of rent control where you can’t move unless your house burns down because you can’t refinance at 7%. You already have a 3% mortgage. So that’s why prices aren’t going down. Until people lose their job, lose their income, they’re going to stay in their houses.”

3. “The Fed’s going to keep tightening until they get that unemployment rate up, or at least they’re not going to lower rates until then. When that happens, you get the housing down, and you get the stock market down.” (Bassman said asset prices would fall once people started losing their jobs and defaulting on their mortgages and stopped piling money into their retirement accounts.)

4. “The Fed has told us, ‘Inflation we don’t like, we’re going to slam on these brakes until something breaks,’ which is the economy. When that happens, bad things will happen to credit. There will be defaults, by definition. That’s how it plays out.”

5. “I think we’re going to get the recession a year from now. The Fed’s done or close to being done. We’re going to get the inflation down, but it’s still a year away because we have not gone into that maturity wall yet. So, I predict that’s going to happen not until sometime, at best, mid-next year.” (Bassman was underscoring the fact that many companies will need to refinance loans at much higher interest rates next year.)

6. “I used to be on a finance committee for one of our kids’ schools. There was this guy, kind of a crazy guy, named Steve Eisman, who was in this thing. I remember one day he walks in, and he says, ‘You work at Merrill, right?’ I go, ‘Yes.’ ‘I’ve got some advice for you.’ ‘What’s that?’ ‘Sell everything, you’re going bankrupt.’ And I didn’t listen to him. That was a mistake.” (Steve Carrell played a character named Mark Baum in “The Big Short” movie, which was based on Eisman.)

7. “You’re welcome to be against immigration. You’re welcome to go and lock the door and have nobody come in. But let’s be clear — if you slam the door, you will get inflation, and you will have slower GDP because you have fewer workers.”

Resource: GWFM Research