Peter Kraus Sees Stress Mounting in Credit With Inflation Rising
Peter Kraus Sees Stress Mounting in Credit With Inflation Rising
(Bloomberg) -- Wall Street veteran Peter Kraus said he expects that the rout in credit markets will only get worse, while prices for goods will eventually start to rise amid the U.S. government’s stimulus.
Companies will initially lower prices, but “as demand comes on and supply chains get strained, I suspect you’re going to see price increases,” Kraus, 67, said Monday in a Bloomberg Television interview. “And over the longer term, over the next three, five, maybe 10 years, I think this significant amount of fiscal stimulus that we’re having in the world will create an inflationary cycle.”
Kraus, the former chief executive officer of AllianceBernstein Holding LP who now runs Aperture Investors, said credit markets will be stressed as companies take on more debt and struggle to pay it back. He said inflation may not rise to 7% as in the 1970s, but that 10-year Treasuries will eventually move back to yields of 2% or more.
He also doubled down on a long-standing criticism of the passive fund management industry, saying that said recent tumult has exposed issues in funds that presume to track the market. He faulted exchange-traded funds as derivatives that don’t necessarily lead to market returns.
“If you’re in the more, we’ll call them, spicier ETFs, or even ETFs that don’t follow large-cap securities, or ETFs that follow bonds, you found that the tracking error between your performance and the index is actually quite large,” he said. “And that is due to the illiquidity of the underlying assets.”
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