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Scaramucci sounds off on why markets are so volatile, hitting Fed, Volcker Rule

Julia La Roche

As markets reel from coronavirus fears, investor and ex-White House advisor Anthony Scaramucci said on Tuesday that he’s never been more defensive on equities.

On Monday, stocks suffered their worst one-day decline in two years as investors became increasingly concerned about fears of the novel coronavirus (COVID-19) turning into a global pandemic. On Tuesday, an early rally gave way to yet another rout that sent investors scurrying to safe-havens.

Speaking to Yahoo Finance’s “On The Move,” the founder of SkyBridge Capital and 31-year Wall Street veteran gave a laundry list of concerns — from the repo market’s seizing up last fall, to the big banks having less liquidity — as to why the trading environment is so volatile.

Scaramucci famously served less than 2 weeks as President Donald Trump’s Communications Director, before becoming his former boss’ most outspoken critic.

He contended that electronic traders are algorithmically setting prices lower when they see heavy volumes.

“You didn’t have that when you had robust specialist activity on the floor of the exchange or when you had prop desks like Morgan Stanley, Bank of America loaded up with capital prior to the Volcker Rule,” he said.

Scaramucci singled out the policy — named after former Fed Chief Paul Volcker — which curbed proprietary trading by commercial banks, as something people will regret in the future.

“They’re going to say what happened was is we pulled $450 billion of prop capital away from the commercial banks that were regulated by the [Federal Reserve], and that was OK in a zero interest rate environment,” Scaramucci said.

“But, what it did was it took a tremendous amount of liquidity out of the market of experienced hand-holders. And so, you have no bid,” he added.

In addition, he highlighted a “benign interest rate policy that may or may not last forever,” — taking aim at the Federal Reserve’s accomodative monetary policy amid a $1 trillion-plus federal deficit.

With stocks so unpredictable, Scaramucci insisted that his nearly 15-year old firm is invested in “mostly fixed income” and that there are “literally no equities in the portfolio at this point.”

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