Fed Advisor: Index investing will prove disastrous when markets finally correct

[greggieP3]

Found this gem on LinkedIn this morning. A former Fed advisor has written a tell-all book about how the Federal Reserve is destroying American wealth. Overall, the article was interesting, but I find passages like this borderline irresponsible to print for a mass audience:

"The Fed’s artificially low interest-rate level has distorted the relationship between stocks and bonds. Rather than one providing cover when the other is in distress, asset classes have increasingly moved in concert. And though portfolio advisers make it sound safe, index investing will prove disastrous when markets finally correct."

Then, after this sweeping generalization, the author just moves on to the next subject. No explanation, no alternative solution, just alarmist fear-mongering. Fun stuff.

Here's the full article if anyone wants to check it out:

https://www.linkedin.com/pulse/how-fed-went-from-lender-last-resort-destroyer-american-booth?trk=eml-email_feed_ecosystem_digest_01-hero-0-null&midToken=AQGdnjnvWx62nw&fromEmail=fromEmail&ut=3rmDAYO2FCknE1

[Abe]

Won't all investing be a "disaster" when markets finally correct? I assume the latter is code for "crash", but could be the usual ~10% drop we see sometimes for no good reason. Does he have an investment advisor firm he's trying to drum up business for?

[LalsConstant]

While I'm not a fan of the Fed's policies by any means, the tone of that article, some overstated circumstances, a lack of hard numbers for claims, and the little throwaway lines to various cryptic pessimisms ruin any point it might have been able to make.

Also it reminds me of this:

https://www.youtube.com/watch?v=vMbQNu-d7QU

[NoStacheOhio]

Please, tell me more about how unrealized losses in my retirement accounts are going to lead to personal financial ruin.

[joleran]

Won't all investing be a "disaster" when markets finally correct? I assume the latter is code for "crash", but could be the usual ~10% drop we see sometimes for no good reason. Does he have an investment advisor firm he's trying to drum up business for?

Not for those actively managed funds that time things correctly with the correct predictions and the ability to do enough within the fund structure to meaningfully impact losses!  Now, if only there were some way to tell which funds those would be...

[bacchi]

Won't all investing be a "disaster" when markets finally correct? I assume the latter is code for "crash", but could be the usual ~10% drop we see sometimes for no good reason. Does he have an investment advisor firm he's trying to drum up business for?

Not for those actively managed funds that time things correctly with the correct predictions and the ability to do enough within the fund structure to meaningfully impact losses!  Now, if only there were some way to tell which funds those would be...

You're in luck! Danielle DiMartino Booth can direct you to some funds that she's sure* will do better in a crash.


*Well, mostly sure, but if she's wrong it'll be too late for you.

[SirOcelot]

So the author "served as adviser to President Richard Fisher" of the Dallas Fed: "He fought the good but lonely fight, and I, in my capacity as trusted adviser, waged many a battle with him."

Fisher opposed rate cuts in 2008 because he was more afraid of inflation than of the recession.  That preceded a core inflation drop to <1% in 2010; since then it's skyrocketed to... 2.3%.

Someday this broken clock will be right again, but don't expect it to tell you anything useful in advance.

[jinga nation]

Hmmm... seems like she is drumming up business for her new business... most of these LinkedIn articles are that anyway. I call that trade rags since there's no independent unbiased peer review of published content.

[Indexer]

"And though portfolio advisers make it sound safe, index investing will prove disastrous when markets finally correct."


Then I'm really concerned how the active funds will do! Thanks to higher costs, as a group, they have to do worse than index funds. Plus index investors tend to be better at buy and hold. That means there will likely be even more disaster on the active side of things.