Stocks may drop 25 percent

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Get ready for stocks to drop 25 percent: Pro

Friday, 28 Mar 2014 |  9:09  AM ET
We’ve been living under a cloud of financial repression for the last four to five years, says Jay Jordan, The Jordan Company chairman & managing principal, sharing his worries about the pace of the Fed’s tapering and its impact on the markets.
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Once the Fed begins to truly reduce its massive bond buying program later this year, markets could see a quarter of their value wiped off the books, a  private equity pro told CNBC on Friday.

Jay Jordan, founder of the Jordan Company, issued the dire warning during an interview on CNBC’s “Squawk Box,” saying a 25 percent drop could extend to all asset classes. He blames the monetary policies of former Fed chair Ben Bernanke for artificially inflating asset prices through super-low interest rates.

Lawrence Bossidy, former CEO of Honeywell, agreed with the basis of Jordan’s warning, but not the numbers. He called Jordan’s forecast an “alarm.”

“I question the depth of the decline,” Bossidy said on “Squawk Box.” “I don’t think we’re going to go down 25 percent.”

Jordan warned investors of financial “chaos” that could embroil the U.S. market as the Fed tries to re-balance its unprecedented $3.5 trillion balance sheet.

“It’s not just stocks, it’s all assets,” Jordan said. “We’ve been living under the cloud of financial repression for the last four to five years.”

Jordan said investors need only to look at what happened in emerging markets earlier this year to see how U.S. markets will react once the Fed ends its easy money policies.

Read MoreStocks have become ‘absurd’: Bill Fleckenstein

“There’s a big speculative bubble out there,” Jordan said. “You’ve seen it start in the emerging markets. It’s already facing us. Their currencies are getting destroyed. Their GDPs are getting destroyed.”

One way the Fed could avoid such a drastic drop in asset prices would be to charge negative interest to banks with billions worth of holdings at the central bank, Jordan said. That would force banks’ deposits to flow back in to the market and create an “ebullient economy,” Jordan said.

“It hasn’t affected us yet, but it could very easily,” Jordan said. “I’m nervous about that. I may be wrong. I’m usually wrong about these things.”

Read MoreFed’s Evans: No rate rise until second half of 2015

No Federal Reserve in history has had to deal with such a big balance sheet, Jordan said. The central bank spent trillions under Bernanke as he tried to save the financial system during the 2008 crisis and revive the slow-moving recovery from the following recession.

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