The co-chief investment officer of the Bridgewater hedge fund Bob Prince has warned that as economic growth improves and inflationary pressures push the Federal Reserve to consider reeling back its stimulus measures, a new phase of downturn may come soon.
He told the Financial Times that the recent sell-off of US government bonds could accelerate, threatening high-flying assets such as blank cheque companies and cryptocurrencies.
The rally in risky assets, which has been running for nearly a year, “really depends on … whether [the Fed] bumps into constraints,” Prince said, adding that it “will typically be inflation, currency deflation or call it the bond vigilantes, where people just say, ‘Hey, forget it. With that much [money] printing I just don’t want to own bonds.’”
As the inflation expectations have recently picked up, Prince said he believed the special purpose acquisition companies and cryptocurrency surge was a “manifestation of that environment,” which was created by the loose monetary policy of the US Central Bank, as well as the recent coronavirus financial aid.
Cryptocurrencies have been rising in value and growing in popularity for the past year, with the market leader Bitcoin gaining around 800 percent in value since January last year when it cost $7,000, reaching a new record on Saturday – over $60,000.
