Thomas Peterffy, founder and CEO of Interactive Brokers listens a question after addressing the World Federation of Exchanges (WFE) annual meeting in Paris on October 11, 2010. The WFE groups leading financial markets. AFP PHOTO ERIC PIERMONT / AFP PHOTO / Eric PIERMONT (Photo credit should read ERIC PIERMONT/AFP via Getty Images)
AFP via Getty Images
Brokerage pioneer Thomas Peterffy spoke with Forbes about his economic outlook, and when he expects the market to bottom out.
On Wednesday, the U.S. reported consumer inflation of 9.1% for the year through June. That number, a four-decade high, rattled markets as stock indices sank.
But investors need to get used to inflation, says billionaire Thomas Peterffy, the 77-year-old founder and chairman of online trading platform Interactive Brokers.
“I believe inflationary pressures will continue for years, not months,” Peterffy told Forbes over video chat, calling from his home in Palm Beach, Florida. “This is not a short-term issue.”
According to Peterffy, who is worth $18.1 billion, there are several reasons why inflation is here to stay: decades of chronic U.S. deficit spending; ongoing disruption in supply chains as globalization “reverses”; a shortage of skilled workers and increasing automation; companies’ self-imposed ESG (environmental, social and governance) requirements that “raise costs of production”; and, paradoxically, rising interest rates, the very mechanism intended to curb inflation.
“As the Fed raises interest rates, it is raising the amount the country must pay to service” its debt, says Peterffy. “This is a vicious cycle that will eventually result in exploding debt.”
A majority of traders expect the Federal Reserve to raise benchmark interest rates by at least 75 basis points, or even one full percentage point, later this month. Last month’s 0.75% rate hike was itself the largest in 28 years. But Peterffy does not expect to see a repeat of the 1980s, when Federal Reserve Chair Paul Volcker jacked up interest rates to double-digits, inducing a crushing recession but stamping out inflation.
“I do not believe the Fed will follow through on its ‘do what it takes’ promise [to bring down inflation], because they are afraid of destroying the economy and the exploding debt issue,” he says. Instead, according to Peterffy, the Fed will cap benchmark rates around 4% and as a result, inflation will hover around 6% for the next several years — There will be stagflation for a while,” he predicts.
Peterffy, despite his gloomy predictions, expects U.S. equity markets to hit bottom as soon as the fall. He suggests the S&P 500 could drop to as low as 3,000 around October —- a 21% drop from its current value of about 3,800. The S&P 500 index has already slumped more than 20% from its record high last November.
“Eventually rising prices will catch up with stocks,” insists Peterffy, and as a result, “stocks will enter a long bull market period propelled by inflation.” The brokerage pioneer adds: “This is a great time to do research and accumulate stocks of companies.” Peterffy is less focused on investing in specific sectors or industries; instead, investors should target companies that are “investing in their [own] competitiveness during this environment and gaining market share,” he says.
In January, Peterffy said investors should consider holding 2%-3% of their wealth in crypto to hedge against fiat currencies “go[ing] to hell.” Now, after the market downturn and liquidity crisis that’s roiled the crypto industry, Peterffy is feeling less confident.
“I think chances are very high that [Bitcoin] will become worthless or outlawed,” at some point, Peterffy tells Forbes. He believes the U.S. government could seek to ban crypto amid concerns about digital assets being used to “provide financing for illegal activities,” as well as the U.S. Treasury Department’s inability to “control or keep track of payments and collect taxes.”
Not that Peterffy has written off digital assets just yet. He still believes there’s a chance that Bitcoin will become very valuable. That’s why he still holds some Bitcoin and plans to buy more if it hits $12,000. (Bitcoin currently trades around $20,000 to the U.S. dollar).
Looking ahead, Peterffy is thinking about more than just markets. When asked about his outlook, he responded with a laugh: “I hope to survive.”
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