- Chris Hyzy, the chief investment officer for Bank of America's Global Wealth and Investment Management division, reveals his biggest market fear.
- If Hyzy's greatest worry does transpire, he says it could trigger a vicious chain reaction, ultimately resulting in an economic recession. He explains how that could happen.
In the current market environment, picking one fear that stands above the rest is a tall task.
There's President Donald Trump's trade war, which has decimated emerging markets and left US corporations exposed to the wrath of retaliatory tariffs. There's also the prospect of slowing growth in tech stocks, which have long been priced for perfection, leaving them vulnerable to a sharp drawdown.
But Chris Hyzy - the chief investment officer for Bank of America's Global Wealth and Investment Management division - has his eye on something else entirely. When he envisions a catastrophic scenario for both markets and the economy, he's focused on the US dollar.
But it's not the level of the greenback versus other currencies that has Hyzy's attention. He's instead wary of a decline in dollar liquidity, which he contends could trigger a chain reaction - one capable of flipping the entire US economy upside down.
Before we get into that ruthless chain reaction of events, it's important to establish what exactly decreased dollar liquidity entails. Hyzy links it directly to the Federal Reserve's decision to taper bond purchases, which means there are fewer dollars in circulation. The same is true when the Treasury allows bonds to mature.
"When other nations need dollar supply, and when those who need financing can't get access to dollar liquidity, that to me is the most worrisome," Hyzy told Business Insider in a recent interview.
To him, what's so daunting about this scenario is how the Fed would react. Hyzy figures the central bank might lower interest rates, or even buy bonds to keep their balance sheet level and pump more dollars in the market. That could then, in turn, set off an unfortunate sequence of events.
"While all of that's happening, you'd see funding stress in spreads pick up across the board, which could induce higher unemployment, claims could go higher, and consumer spending would go down," he said. "Then you have a recession."
If you think that sounds drastic, consider that many market experts have been weighing the possibility of a severe economic downturn for months.
Back in early October, Brad McMillan - the chief investment officer of the $150 billion Commonwealth Financial Network - gave Business Insider his four-part checklist of indicators to watch. And while we're not yet past the point of no return, those measures are veering close to dangerous territory.
More recently, Nobel Prize-winning economist Paul Krugman exclusively told Business Insider that people are blindly ignoring the causes of the last recession, which is leaving the economy vulnerable to another. He wouldn't go as far as to predict when a meltdown will occur, but his comments imply great uncertainty.
In the end, it's clear that a recession is more of an inevitability than a far-flung notion. For that reason, Hyzy's warning about dollar liquidity should be heard and heeded.
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