Money managers who successfully anticipated the dot-com collapse and the global financial crisis are expecting a stock-market crash.

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This fund manager is holding 60% cash — and expecting a stock-market crash

Ruffer’s main claim to fame is to have successfully sidestepped the 2000-2003 and 2007-2009 market collapses

Yikes.

There’s bearish, there’s really bearish, and then there’s Ruffer & Co.

I don’t want to spook everyone managing their own retirement portfolio. But the London-based money managers, who successfully anticipated the dot-com collapse and the global financial crisis, are expecting an almighty stock-market crash — and are now holding nearly 60% of their flagship Total Return fund in cash and short-term bonds.

Plus another 20% or so in longer-term inflation-linked bonds and gold. And holdings in safe-haven Japanese yen. And put options on the market, which will pay out if things fall apart.

Total stock-market exposure? Er … 15%.

The fund is now hiding even deeper in its bunker than it was in 2007, before the global financial crisis, co-manager Steve Russell says.

Its exposure in “2007 was similar in terms of low equity exposure,” he tells me. “It was more like 20% to 25% then, compared with 15% now.” (I interviewed Russell for a Barron’s Live podcast late last year.)

Russell laid out the case in more detail in a recent note to clients.

“Markets still believe in a ‘soft landing’ — inflation dissipates without a recession. Yet we stick to our increasingly unfashionable belief that record monetary tightening’s full impact has yet to be felt,” he and his co-managers wrote. “Locked-in low rates and faster nominal GDP growth have likely deferred — but not defanged — the biting point.”

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Why 5% bond yields could wreak havoc on the market

‘Investors are going to ask for more compensation to take risk and when you see liquidity evaporate more and more, that’s what’s going to turn the market over,’ said Robert Daly of Glenmede Investment Management.

The yield on the 30-year Treasury bond briefly rose above 5% again on Friday, opening the door to the likelihood of a more sustainable rise above that mark and the risk that the benchmark 10-year yield follows — moves which could wreak havoc across financial markets.

One big reason is that investors are likely to demand greater compensation for taking risk as yields hover around some of the highest levels of the past 16 years, asset managers said. Corporate credit spreads could keep widening in a sign of worsening economic conditions and higher overall risk. And with returns on government debt becoming a more favorable option for investments, the stock market may be vulnerable to repeated drubbings.

h/t mark000