“In general, my experience says that those periods don’t last long. Something will rebalance it and give it a different perspective,” added Solomon.
The Goldman Sachs CEO isn’t the only one worried about overcapacity and falling prices in the market.
Solomon told Bloomberg he is concerned about how “massive amounts” of stimulus from central banks and governments around the world are driving inflation higher, along with asset prices like equities.
Market unprepared for more volatility?
Solomon said it remains unclear whether the market is prepared for how quickly the Fed is looking to adjust, let alone the possibility of a rate hike once the tapering process is complete.
“It’s possible that central banks could unleash this massive stimulus in a way that doesn’t create some kind of fury or some kind of real shock to the markets, but it’s also possible that they don’t. can do it that way,” said Solomon.
He also told Bloomberg that if long-term rates continue to rise, “that in itself will take some prominence away from certain markets.”
Solomon warns that many investors don’t remember, or don’t know, when inflation spiked in the 1980s and the Fed was forced to raise interest rates aggressively: “It’s been a long time since we operated in an environment where the general trend was. on already higher interest rates.”
Furthermore, with so many other stocks and assets performing so well, investors may be fooling themselves by thinking it’s easy to make money in the market, he added.
“Everybody feels pretty smart right now because most of the things you invest in go up in price. That’s not how it normally works,” he said. “My experience tells me this is not a good time.”
