- Charles Schwabs' Liz Ann Sonders said more companies will feel the pain as the easy money era ends.
- The liquidity tide is going out and will expose weaker players she said on Blockworks' Forward Guidance podcast.
A recession looks increasingly unavoidable as Federal Reserve policy and March's bank crisis close out a decade of easy money and tighten credit conditions, according to Charles Schwab's chief investment strategist, Liz Ann Sonders.
In a Thursday interview on the Forward Guidance podcast, Sonders told Blockworks' Jack Farley that the failure of Silicon Valley Bank raised concerns about the financial system, but the issues extend beyond just banks.
"I don't think this is a 2008 kind of situation, but I think it's emblematic of the end of the era of easy money," she said.
In reference to Warren Buffett's adage — "only when the tide goes out do you learn who has been swimming naked" — she said that SVB was indeed a naked swimmer, and similar cases will likely emerge.
"[T]here were a lot of companies, startups and zombies that were kept afloat or allowed to grow and flourish in this high-liquidity, zero-interest-rate environment," Sonders said. "And those days are over, and I think the implications are still somewhat in front of us, not behind."
A Fed tightening campaign typically leads to something breaking, Sonders explained, and bank failures have a related impact of tightening credit conditions.
Last month, the takeover of Credit Suisse by UBS as well as downgrades of several regional banks sparked a crisis of confidence in the banking system, a Dallas Fed survey found this week. The economists found that total loan volume dropped in March, reflecting stricter lending standards and a deteriorating financial outlook.
Fed chief Jerome Powell had forecasted in March that households and businesses could face a pullback in lending as a result of the bank crisis.
Meanwhile, investors are still assessing a slate of recent economic data including jobless claims, which came in higher than expected last week, and Wednesday's private payrolls data, which clocked in below expectations, ADP said.
That labor market resilience could show more cracks on Friday when March employment data publishes, which would signal that some of the Fed's efforts are having their intended result.
Sonders said the data ultimately suggests more downside ahead for the economy.
"In large part due to the [economic] data that's come out recently...I think a recession is somewhat unavoidable."