Scott Bessent, head of macro hedge fund Key Square Capital Management, said he expects a subsequent decline in the US stock market and a significant increase in volatility, as the US economy is actually much more fragile than most investors realize.
Bessent was once the Chief Investment Officer of Soros Fund Management and a well-known fundraiser for Republican presidential candidate Trump in the United States. If Trump wins this year's election, Besson is considered a popular candidate for the position of US Treasury Secretary.
At a recent rally in Asheville, North Carolina, Trump even specifically called Benson on stage, calling him "one of the most outstanding people on Wall Street.
"At present, we believe that the US economy is in an unstable and emerging market type equilibrium state," Besant wrote in his report earlier this month that the huge deficit of the US government and the bonds issued using short-term instruments contributed to the asset foam in the stock and real estate markets.
He added, "Every emerging market that exhibits these characteristics, especially during election cycles, has experienced economic downturns
He wrote that although the rise in stock and real estate prices has benefited the wealthy, wages for the American public remain stagnant, and prices of food, housing, and other necessities have risen, dealing a heavy blow to low-income groups. This will also lead to an increase in borrowing and consumer loan delinquency rates.
He predicted that when the asset foam burst, it would also hit the people with higher incomes.
Besent also told clients that he is buying natural gas futures and stocks, and expects the energy transition and artificial intelligence data center construction boom to drive up prices.
Beisen's hedge fund has also dabbled in investments related to the Japanese yen. He predicted that the Bank of Japan would raise interest rates to a higher and longer lasting level than market expectations. The Bank of Japan has raised interest rates twice this year, with the most recent being at the end of July. At that time, Bank of Japan Governor Kazuo Ueda hinted that if the data supported it, the Bank of Japan would continue to raise interest rates.
Bessent wrote in the report that the Bank of Japan's interest rate hike "will have a counter intuitive effect, strengthening the Japanese economy as high saving households and businesses begin to reap returns from their savings. Higher interest rates will lead Japanese investors to repatriate funds currently invested abroad.