Ed Butowsky, Managing Partner at Chapwood Investments, joined Closing Bell to break down the bear market on Wall Street, and discuss why he thinks the Fed may not be able to engineer a soft landing for the economy.

Closing Bell

Financial Adviser: Recession is Inevitable in U.S.

Welcome back to cheddar news is closing bell. Everyone, I'm kristen Schoeller here at cheddar headquarters in lower Manhattan and analysts expecting this bear market on Wall Street to get worse before it gets better as investors react to inflation. And the Fed's biggest interest rate hike since 1990 for prompting widespread fears of a recession. Well, tech stocks have been hampered recently, but it's not only those stocks, the crypto market sinking as well and the housing market's starting to cool with jobless claims reversing course and starting to rise, joining me now is Ed Butowsky, managing partner at Chapel Investments. It's a financial advisory firm. Thanks so much for coming on the show. Of course the markets closed today for the juneteenth federal holiday. But the S and P last week posting its worst weekly performance since 2020. What do you think is ahead? Could we see more selling in the stock market? Yes. You have to look and understand why we had selling to begin with and we had selling because things were overpriced and there weren't a lot of forecasts that were very positive about growth down the road because of inflationary pressures. And that didn't change over a week. And that's not gonna change over the next couple of weeks. We're going to continue to see pressure on stocks because you have interest rates that have to rise to slow the inflation down. The important thing to remember is normally you have a rising, you have a strong economy that is coupled with rising prices. But right now you don't have a strong economy. So you're going to see a recession without any question, there's going to be a recession. Um And there's just no way to avoid it because we have to raise rates to slow rising prices down, but at the same time you're gonna be slowing the economy down even more than it already is. So let me ask you this at um actually we do see on Wall Street about 50 50 chances, it seems among certain ceos that will hit a recession, but I know that number is actually rising when it comes to the overall S and P 500 landscape of company's ceo ceoS actually surveyed. Um And so how confident are you in that call that you think will hit a recession? What are the data points that you're looking at? Well, I'm looking at the data point that we look at is the G. D. P. And if you look at the first quarter of GDP, we didn't really have, you know, we had a negative number, negative 1.4% or negative 1.5%. I think it was revised to and that was after 1.5 months or almost two months of, we didn't have that great of inflationary pressures, although although we did, we didn't have the oil issue with Ukraine and Russia and now we have a full quarter of all of that and and I just you can just sense it, you can smell it, you can feel it and you just know, you know, maybe those aren't really data points, but, but you can absolutely feel that we're going into a recession and recession for those of you who don't know are two consecutive quarters of negative GDP growth. And we don't see anything better in the second quarter than we did in the first quarter. Well, certainly we are waiting to see whether or not we do actually hit a recession based on the data. We haven't yet officially actually finished the second quarter to see if it is another quarter of contraction. You're right. We did contract the first three months of this year. So if we do contract in the second quarter, we will officially have entered a recession. But some of the biggest testimony this weekend coming from Fed Chair, jerome Powell in front of Congress, both the Senate and the House and of course all sorts of questions about inflation and the path forward for the economy. What are you going to be listening to from the Fed chair when he testifies in routine testimony this week? I'm gonna be looking for him to fall on his sword and admit that he was way behind the curve and that because if you look at the Fed funds rate, let's just say the Fed funds rates at 1 1.5% you have inflation at 8.6%. That's the largest gap that you've seen historically between what inflation is at and what the Fed funds rate is at. You have to ride, You have to get a raise on the Fed funds rate in order to make that gap smaller. So I'm looking for him to come out and admit that he screwed up and that he needs to get a lot more aggressive and we're not talking about 50 or 75 basis point rise is we need 100% 100 basis point rises over the next number of months when they meet. Otherwise, we're just going to continue to see runaway inflation and we're gonna see less money in people's pockets. So that's what I'm looking for from him. Although I don't think that's gonna happen because he's a politician, even though he's the Fed chairman, he's very political as well. So let me ask you this, you are a financial advisor. And so what are you advising your clients in this environment? I mean, based on your expectations here, a recession is a done deal. We're waiting to see whether or not that actually does come to fruition, are you advising your clients to stick with it to pull some money out of the stock market or perhaps to start trying to find bargains in the market. Yeah, if you look at the overall market, the most stocks are down about 30-35%. So I'm looking for really good companies that have cash flow that pay dividends. I'm looking at senior rate floating notes and business development companies. These are funds that whose interest rate that they pay out goes up because the interest rates float. So they actually do well during inflationary periods. And I'm looking at those and I'm looking at managed futures. But there are some really big companies out there that pay really nice dividends that we're looking at right now that we're gonna start putting money to work in. Alright. Ed Butowsky, managing partner at chap would investments. Uh Thanks for coming even on an off day holiday in the stock market.