Bear market fallout will trigger insolvency of bank, forecasts Morgan Creek founder


The fallout from the bear market in commodities will likely extend to the insolvency of at least one European bank, while growth will rebound in key emerging markets, according to some “surprise predictions for 2016” from Morgan Creek Capital Management founder Mark Yusko, speaking at the Cayman Alternative Investment Summit, which has been taking place in Grand Cayman this week (February 4-5).

Yusko outlined a series of “game changers” for the funds business. He said he expects the relentless bear market in commodities since 2011 to come to a head with the messy bankruptcy of one or more commodity trading companies resulting the unwinding of complex derivative transactions. These he said will “cause huge losses in the European banking industry and push one or more European banks into insolvency”.

The contraction in US manufacturing is indicative of a recession and growth will surprise on the downside, Yusko also predicted, adding that he felt the December rate rise did not come soon enough. The market will be begging for QE4, he said with inflation expectations well below the pre-QE triggers and indicating deflation on a massive scale.

“Realising that the end of the hydro carbon era is approaching more rapidly than anticipated, Saudi will abdicate its role as swing producer and let the US do that,” Yusko said. In the second half of 2016 he expects some recovery in the oil price as the capital expenditure slows and the market heads back to $50 per barrel, with most of this year spent in the $30s and $40s.

A weaker yen will stimulate the Japanese economy and corporate profits will surge to new records, he also stated. “The only way you are going to get Japanese equities up is to weaken the yen because that is their only way out. They must get inflation back and negative interest rates will not do it,” he said.

China and India will stage a comeback, Yusko said, with leading economic indicators growing in China and India expected to be the world’s fastest growing nation, with no reason for stocks to be down.

Cayman Alternative Investment Summit, Morgan Creek Capital Management, Mark Yusko, Europe, North America, Cayman, Asia-Pacific

Cayman Funds