Stock Market’s Bottom is Hardly Even Inside Sight – Investment Watch

by David Haggith

When several of the large money-driving voices in financial media and major financial institutions start saying the identical thing I’m, I begin to wonder about myself. Or is it just becoming that obvious now? A number of the biggest names on Wall Street are actually saying the stock market is delusional and is headed for a much deeper fall.

Even for those who don’t have money in stocks, it is advisable to listen. The destruction of trillions of dollars of wealth on the earth because the Fed hoses up all of the money-slop is changing the world and can proceed to accomplish that. So, before you go bargain-scooping for those fire-sale stocks, consider the predictions in this text by market gurus which have finally began sounding a bit like yours truly with my predictions of the approaching Epocalypse (though they aren’t quite that crazy yet):

The Day by day Doom, during just the primary two days of this week, covered a couple of surprising voices in its headlines that brought forth this message, which I’ll summarize for you within the article that follows:

… and in tomorrow’s edition … yet another:

The 2-Michael’s madness

I’m not criticizing them. They simply now share my madness, having come into their predictions a couple of months after I began anticipating this journey back in the summertime of 2021.

The strongest of those voices is Michael Wilson of Morgan Stanley. While I did criticize Zero Hedge for making a lot of the “Two Michaels’” predictions when Michael Wilson and Michael Hartnett of BofA predicted an enormous rally for November-January, the market did manage to pound out one other perfectly typical bear market rally. That fizzled out at the scale of earlier rallies and didn’t so long as the Michaels made it sound, but it surely is now meagerly attempting to reclaim that height in first a part of January, which Wilson had said would still be good for the market as much as about January 15, if I recall what he wrote almost three months ago:

This time, the stock market didn’t return to the underside of its year-long, bear-market channel because Santa Clause, who didn’t deliver an actual rally at the tip of 2022, did, no less than, clip the underside off the market’s mid-December slip within the snow to where the market slid sideways on its butt through the rest of December. Now delusional market investors try their best to be market makers and drive the market up of their re-inflated hope that a brand new yr could also be considered one of higher news and in some way magically wipe away the mess of the last two years.

Not so, says Wilson, who’s the one voice from big banks that has been right for a complete yr in his bearish forged (as Hartnet joined him a few months in). No, the worst fall is yet to return. Wilson predicts one other 22% avalanche right up ahead, although the S&P already managed to complete last yr at a 19% recess, leaving it sitting right back at the edge of that 20% drop-off that put it on this unabating bear market. So, irrespective of what the market does within the weeks ahead, for those who don’t consider me, it is advisable to concentrate to Wilson who has seen things generally the identical way I even have all of last yr, and who has quite a lot of math to back his predictions up:

Michael Wilson — long probably the most vocal bears on US stocks — said in a research note that while investors are generally pessimistic in regards to the outlook for economic growth, corporate profit estimates are still too high and the equity risk premium is at its lowest because the run-up to 2008. That implies the S&P 500 could fall much lower than the three,500 to three,600 points the market is currently estimating within the event of a mild recession….

“The consensus may very well be right directionally, but fallacious by way of magnitude,” Wilson said, warning that the benchmark could bottom around 3,000 points — about 22% below current levels.

Yahoo!

Wilson, for his rating of successes all of last yr, was ranked #1 in an institutional survey. If he continues to be as right in his trajectory predictions this yr as he was all of last yr, the market can be approaching the zone (dollar-green box) and glide path I predicted in a Patron Post last January this market would get to:

I’ll note that, while Wilson was right in each of the steps last yr the market took, he revised his ultimate bottom for the yr as he went along. Nevertheless, he did, no less than keep revising down ahead of the markets moves. So, for those who followed him, you’d have done well in staying out of harm’s way and catching some rallies along the way in which.

I laid out several paragraphs of explanation for the lines in my chart to my Patrons, after which explained this was not going to be short ride in getting there:

Further down the road, the next graph shows the zone where I feel the … S&P is most certainly to finish when the Every little thing Bubble finishes imploding based on the stock market’s strongest longterm trends and support levels….

Somewhere within the green box looks like a natural resting point for the S&P. That’s, no less than, back to the underside of the 2020 implosion — the steepest on record, but I don’t think it’ll get there in a single shot. I’ve never suggested that.

Within the very least, I feel we’re going to wipe out the absurd rocket ride because the COVID recession. One of the insane things I’ve heard recently is that this market still must form a blow-off top. Really? What on earth do you call that final rise in comparison with ALL other rises before it if that isn’t peak market-mania melt-up?…

The longest, steepest, and (since it is occurring during a world pandemic) most insane rise the market has ever made supposedly shows no sign of a melt-up yet??? Just put my head in a vice and squeeze it. That’s by far the largest rocket ride anyone has ever seen, and it has been happening while your complete underside of the market corroded away to where greater than fifty percent of NASDAQ stocks are actually in their very own bear markets, leaving no support to the outer skin of the market that continues to be inflated. (Yet, there are still idiots saying, “Buy the dip.”)

The Every little thing Bubble Bust Pt. 1: How Far Will the Stock Avalanche Fall?

After all, the market fell an increasing number of from the time I wrote that in January, however the delusional investors that refused to consider within the Big Bear scenario that seemed so apparent to me kept buying the dip all the way in which down all of last yr. So, January did, indeed, turn into the highest for the S&P and the Dow. Those that were standing where the guy on this photo at the highest of the article would have done well to not take the trip over the sting from that cornice on the all-time-spectacular blow-off-top:

Bundesarchiv, Bild 102-08803 / CC-BY-SA 3.0, CC BY-SA 3.0 DE , via Wikimedia Commons

But, you already know, do as you wish. Some people like to ski avalanches, and a few of them even live. Relies on the scale of the avalanche and the skill of the skier, but this bear has been considered one of the large ones, and it still has a number of room to roll, and now even the market’s biggest enthusiasts are saying it, not only bearish Wilson (who is way from a permabear). That January summit, in fact, was only the start of this big bear marketplace for the S&P and Dow. I used to be merely declaring we had passed the primary mile marker within the Russell 2000 and almost within the NASDAQ to where the opposite major indices, which were just beginning to crack, can be joining the avalanche for the remainder of its trip down the mountain.

The view from on top

Clear back then, I identified that the issue for the dips who were buying the dips is that they didn’t consider the Fed. From the beginning of the yr, I explained on quite a lot of sites, especially within the comments on ZH, that the pivot mania hoped for a pivot that may never come:

The large difference here as I’ve said again and again for those dip buyers is that the Fed isn’t coming back in as easily this time.

Why did I consider so fervently the Fed was not going to return to rescue this time when it had so again and again before? Did I even have a crystal ball? After all not, just a bit historic perspective that a lot of today’s market buyers don’t have:

Most of those buyers have NEVER experienced a Fed that HAS to fight inflation. The dip-pumping Fed never had any significant inflation to even take into consideration. Actually, it’s problem was all the time (by way of its own goals) tips on how to get inflation as much as the extent it likes. That is a completely different playing field with different rules.

My Patrons began the yr with that knowledge, and this yr they can be starting with additional predictions that I’ll eventually share with everyone far down the road, as I’m with last January’s now. As they’re materializing, I need everyone to get some perspective and understanding of where we’re heading, which all the time means understanding where we got here from, and what higher solution to do this than by going back to the view from the highest last January?

The all the time too-quick-to-criticize will jump to say, “But we never hit that green box in your graph;” nonetheless, the ride is way from finished. As I explained then, the crash into the green box was not going to be something that may be completed in 2022. Nor was the green box what I might quite call a prediction but more of an announcement back the of where I feel that is ultimately likely to go:

The good stock avalanche and our line of descent

As I’ve long said, the NASDAQ [at the end of 2021] looked prefer it was forming a bubble because it did in 2000 (with a vastly steeper and better blow-off top [this time]), and I said the NASDAQ will likely lead the remainder of the stock market down. This crash will even likely be protracted like that one, so let’s take a refresher on what the dot-com bust looked like, especially for any who weren’t trading back then.

I, then, laid out a graph showing the pattern of the NASDAQ’s long crash throughout the infamous dot-com bust and explained why the same avalanche to today’s was just getting going back in 2000 with a number of pretty pictures of mountain avalanches and cornices begging to fall for effect like this one:

That could be a picture of where I believed the S&P stood firstly of January. How far more of a “blow-off top” do you wish before the market cracks off and turns into considered one of these because it races to seek out the underside:

Again, not multi functional crash. However the Fed’s more-rapid-than-ever reversal from more easing than ever to full tightening mode could speed things up! The funny thing is that anyone thinks the market can survive that, and yet an amazing many obviously still consider the market can survive that.

The sure did. Many bet up available on the market all the way in which down.

The graphs I presented showed how the NASDAQ’s crash back in the large dot-com bust took twenty-nine months to seek out its bottom: (Note the graph I discovered has a typo and says 19 months, but you may count them along the underside.)

Where are we on that graph immediately? I might say today we’re standing on that small rise right after point #3, which was the one-year point for the NASDAQ back then. We’re ready for the following big plunge, which can include more rises and drops to return after this just because it did back then. The NASDAQ worked its ways down one other 55% drop to its final resting point where it was ended up 78% below its summit.

I’m not saying we are going to take that much over the yr ahead, but you may see these big crashes can easily take two years or more to seek out their bottom; and, while the following a part of the journey can have one other very steep plunge in store when the market finally wakes as much as reality, the journey becomes more stretched out because 55% (or 22% or whatever) from the current point isn’t as many feet of total altitude to fall in the identical period of time as that very same percentage from the much higher summit.

Now a chorus of strong voices has joined me

I believed on this crash strongly enough that I bet my blog in 2021 that the stock market would enter a bear market by 2022. As you see, the blog continues to be here:

In the primary half of 2021, I bet my blog that the inflation I had been predicting would rise so hot through the yr for therefore long that it might kill the stock market bull. It’s time to call the bet.

Technically, my bet cleared the minimum bar for being cleared off the table when the Russell 2000 index closed in a bear market, down 20.5%, on Thursday, but that’s just the beginning. The NASDAQ closed teetering on fringe of the bear precipice, as well — down 17% that very same day.

I Bet My Blog and Won: The Stock Market Collapse of 2022

I admitted I had my errors prior to now, which isn’t any surprise for anyone, but gave this caveat:

Where I’ve sometimes been off is within the size of the autumn … I’ve not a lot been fallacious in how big the crash would have been if left alone, but fallacious in not seeing how big the Fed’s response can be to avoid wasting the market throughout the crash.

The Every little thing Bubble Bust Pt. 1: How Far Will the Stock Avalanche Fall?

Well, this time the Fed isn’t coming to the rescue. Those investors who were standing at the highest of the cornice last January and decided to leap into the dip and buy found that out all of last yr because this time really was different. In all of the previous times where the Fed massively intervened in each big fall that I had said would occur, the large scale of the intervention (no less than, in my opinion) proved how bad the autumn would have been without the intervention (and the autumn was still bad, regardless); but this time the Fed can’t intervene. There is no such thing as a safety net here until the economy breaks or inflation is put to rest, and my latest Patron post laid out what that isn’t more likely to be soon.

It isn’t any longer just the Two Michaels who’re saying this. Other market leaders are joining them quickly now to say the delusional market isn’t pricing within the true risk because investors proceed to consider the Fed will pivot, which these advisors all say isn’t about to occur because inflation isn’t nearly close enough to dead. Let me close with a summary of quotes from the articles referenced firstly of this one in regards to the plunge that even the large market-makers are actually predicting, starting with Wilson:

Wilson … warned while a peak in inflation would support bond markets, “it’s also very negative for profitability.” He still expects margins to proceed to disappoint through 2023….

The newest MLIV Pulse survey … showed market participants are bracing for a dismal season to push the S&P 500 lower over the following few weeks.

Yahoo!

Wilson believes the market is grossly missing how dedicated Powell is (warranted or not) to fighting inflation…. His evaluation is rational doom and gloom stuff. Less macro and more fundamental on the earnings level as well. And it’s sort of unsettling for those who are of the elemental evaluation persuasion as we once upon a time were….

If he is correct and earnings do compress in no small part from dropping inflation without stimulus, then stock prices may very well be down even greater than 22%.

Zero Hedge

In the event you want a number of the granular detail of how Wilson involves his standpoint from market fundamentals, I’ll allow you to confer with ZH’s article; but for my summary view BlackRock’s Fink and others within the high world of finance agree for a similar reason Wilson lays out:

A number of the world’s largest asset managers akin to BlackRock Inc., Fidelity Investments and Carmignac are warning markets are underestimating each inflation and the last word peak of US rates, identical to a yr ago.

Yahoo!

Uh huh. Identical to a yr ago. They learned nothing from their first fall, so many will take the remainder of the ride.

The stakes are immense after Wall Street almost unanimously underestimated inflation’s trajectory. Global stocks saw $18 trillion worn out, while the US Treasury market suffered its worst yr in history. And yet, going by inflation swaps, expectations are again that inflation can be relatively tame and drop toward the Federal Reserve’s 2% goal inside a yr, while money markets are betting the central bank will start cutting rates.

In the summertime of 2021, I claimed inflation can be the large story for 2022, and now in 2023 it continues to be driving the story:

That’s set markets up for an additional brutal ride, in keeping with Frederic Leroux, a member of the investment committee and head of the cross asset team at €44 billion ($47 billion) French asset manager Carmignac, since employee shortages are more likely to fuel higher-than-expected inflation.

I also began saying employee shortages were key further back on this mess than I can keep straight, and I’m still saying they’re the Fed’s major blind spot and can lead the Fed to overcorrect into a good more cataclysmic recession. (See my last article: “It’s Worse Than it Looks: Beneath the Surface the Bottom is Falling Out, and Persons are Jumping out of Windows.”)

These are the harmful forces playing out: Inflation is forcing the Fed to maintain tightening, which takes the guard rails off for the market because there can be no rescue. A sick jobs market isn’t simply raising the cost of labor because the Leroux is serious about, but additionally reducing production and services to make all shortages worse, which could drive inflation counter-intuitively higher down the road if the Fed crushes production more, making shortages even worse in its misunderstanding of the roles market.

“Inflation is here to remain,” said Leroux in a phone interview. “After the crisis central bankers thought they might resolve the extent of rates of interest. Previously two years they realized they don’t: inflation does.”

He added that considered one of the largest mispricings out there today is the expectation that inflation will come right down to 2.5% next yr, before adding that the world is entering a macroeconomic cycle comparable to between 1966 and 1980. That period saw energy shocks that drove US inflation into double digits twice.

“We’ve got to live in a really different environment than before,” Leroux said….

On Thursday, Fed officials reiterated the central bank’s hawkish stance with comments that sought to dispel hopes for an imminent reversal within the policy path. On Friday the European Central Bank’s Chief economist Philip Lane echoed that sentiment, saying price pressures will remain elevated even when surging energy costs ease….

“Central banks are unlikely to return to the rescue with rapid rate cuts in recessions they engineered to bring down inflation to policy targets. If anything, policy rates may stay higher for longer than the market is expecting,” a team of analysts including Jean Boivin, the top of [BlackRock Investment] Institute, wrote last week.

BlackRock Says Traders Betting on Tumbling Inflation Are Incorrect

How again and again do Fed officials should say it? Yet, the delusional market, even after a yr of monetary pounding, refuses to get this message. Whatever the market’s delusions, the fact of our economic troubles is way from over; the fight by most central banks against inflation is way from over, even when it becomes a bit less intense; so plenty more pounding from reality is coming.

Fidelity Investments’ director of worldwide macro Jurrien Timmer told Bloomberg that inflation stays a key risk to markets because the Fed has repeatedly made it clear that it desires to see the measure come down all of the solution to the two% goal, not only a slowdown in price growth….

Carmignac’s Leroux said the market’s deal with the Fed’s potential pivot is “a sideshow.” “In some unspecified time in the future the market could have to know that more rate hikes are coming,” he said.

Jamie Dimon, the well-named head of JPMorgan Chase, somewhat agrees, too:

Jamie Dimon Says Fed May Must Hike Interest Rates Beyond 5%

Jamie Dimon said the Federal Reserve’s rate hikes might have to go beyond what’s currently expected, but he’s in favor of a pause to see the total impact of last yr’s increases. [Lest the Fed overcorrect.]

There’s a 50% probability … that the central bank could have to go to six%, the JPMorgan Chase & Co. chief executive officer said in an interview aired Tuesday on Fox Business.

Yahoo!

Dimon, who pulled the plug that triggered the Repo Crisis in 2019 when JPM stopped loaning to other financial institutions from its withering reserves throughout the Fed’s last quantitative tightening efforts, noted that the consequences of quantitative tightening remain a priority of his this time around. As it’s possible you’ll recall, JPM gave no public warning before it pulled the plug last time. Actually, it took a couple of days of digging to determine what suddenly tripped the market to fall. JPM just got to the purpose where it had enough and pulled repos away from clearing-house markets and hedge funds.

Banks are prepping for worse times to return, not higher

Banks are gearing up for a recession as we start the yr, which they weren’t doing going into the Repo Crisis, so that they may grow to be even less willing later this yr to loan out from reserves as those tighten more because, even when the Fed stops raising rates, it hasn’t breathed a word about discontinuing the roll-off of its balance sheet, generally known as quantitative tightening, which tightens bank reserves. That continues at a faster schedule than the Fed set before the Repo Crisis.

US banking giants are forecast to report lower fourth quarter profits this week as lenders stockpile rainy-day funds to organize for an economic slowdown that’s battering investment banking….

The six largest lenders [are] expected to amass a combined $5.7 billion in reserves to organize for soured loans, in keeping with average projections by Refinitiv. That’s greater than double the $2.37 billion put aside a yr earlier.

The Business Standard

That will not be an enormous sum for six major banks combined, but it surely shows the move of retaining bank reserves is getting began. It’s that crack within the cornice of banking.

The six banks are also expected to report a mean 17% drop in net profit within the fourth quarter from a yr earlier….

A parade of executives has warned in recent weeks of the tougher business environment, which has prompted firms to slash compensation or eliminate jobs….

“We’re exiting a period of extraordinarily strong credit quality,” said David Fanger, senior vp, financial institutions group, at Moody’s Investors Service.

The job losses noted in that article, too, have barely begun; but that’s the reason that is the beginning of that next run down from point #3 on the graph above by way of gauging where we likely are on this collapse process, which I consider will ultimately be worse than the dot-com bust or the Great Recession because that is the collapse of the Every little thing Bubble — larger bubbles and more of them popping all world wide, not only within the US.

Into the abyss

This is occurring during a time of our first European war with Russia since World War II, massive global sanctions, scorching worldwide inflation, a badly damaged labor force world wide attributable to a unbroken global pandemic that could be worse than the Spanish Flu, global economic lockdowns that we’ve never seen before, which come and go like bad weather … oh, and greater than the standard amount of bad weather from an extreme global drought going right into massive coastal flooding as was also reported in The Day by day Doom with links to stories and various photos and videos:

After years of record drought, California continues to get deluged with more water than it may well possibly handle. Fourteen people have died to date. Entire towns have been evacuated. Los Angeles gets over five inches of rain, while some mountain areas see fourteen inches. Meanwhile, crypto billionaires are dying like flies, giving recent intending to the word cryptocurrency….

The Day by day Doom

Do you’re thinking that, with all of that, the fact that has spread across this earth prior to now two years doesn’t have more punishment to deliver to this delirious stock market?

It must get a grip.

For the ride to return.

Take a loaf of hope, knead it with oodles of optimism, add a generous sprinkling of speculation and definitely avoid even a touch of reality. Bake the concoction rigorously, and what do you get? The present frame of mind of investors positioning for runaway gains in US stocks.

Ven Ram, Bloomberg markets live reporter and commentator via Zero Hedge

Good luck with that!

At the center of stocks’ recent optimism is speculation that the Federal Reserve will pivot enough to chop rates this yr — a scenario that is essentially predicated on inflation and the US economy alike crumbling like a soggy winter cookie.

Good luck with that, too!

Each time I said the stock market goes to go down more, nearly all of writers I’ve corresponded with have said I’m fallacious, and a small minority of my readers tell me the identical; but I can only say what I consider, and I see no way the market goes to rise through that boiling mess as all of the bubbles that the central banks of the world inflated are actually busting in a world that seems plagued with greater than the standard share of major problems and when politics have never been more acrimonious (no less than, in my lifetime), even inside parties, in addition to the Fed crushing down on a piece force that’s already crippled since it never recovered to the scale it was before Covid, and so its underproduction is probably going a much bigger pressure on inflation than those wage hikes the diminished workforce is requiring if its going to maintain doing the job of caring a bigger share of the load on the backs of fewer people.

Our central banks and leaders don’t even begin to know the issues throughout the labor market, let alone all these other things these same leaders make worse with lockdowns, vaccine mandates that strip away scarce laborers, continuing tariffs, and, yes, sanctions on top of all of it; and so they are too busy in internecine battles inside their parties and investigations of the opposite party to ever spend time on solving the issues IF they even knew tips on how to do anything aside from compound them with their misguided ideas.

In normal times, you possibly can write much of that off as cynicism, but it surely’s hard to disclaim now for those who take a look at all of the historic dysfunction within the US government I’ve been covering within the news section of this site and similar dysfunction in Brazil and also you weigh within the incontrovertible fact that the Fed continues to be attempting to create a recession once we are already technically in one which we’re simply denying. Our leaders are blind and dysfunctional and at war with one another.

And the stock market? Well, investors are flying around like drunken birds inside a falling cage.

 

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