From Peter Reagan in birch gold group
In 2022, there were several signs indicating the The United States was in an economic recession..
These signs included (but were not limited to): back to back negative GDP quarters growth, red hot inflation all year, and main market indices falling from 10% to 33%. Bonds also had their worst year since before the Civil War.
Despite signs pointing to a slowdown in the US economy in September 2022, it appears that massaging from the definition of the word “recession” dismissed the idea that it was actually, technically in a recession. (That would be a bad political look, after all!)
Most major media played along.
But you know who wasn’t fooled? Well, me, for example, and the top financial experts at Morgan Stanley.
Pay attention: this analysis is based on data, not hope or wishful thinking…
Morgan Stanley predicts that stocks will lose other 22%
While bullish investors seem to be seizing any opportunity to claim that “the markets are fine” (such as reacting favorably when inflation cools 0.1% in a month).
Michael Wilson, who is the chief equity strategist at Morgan Stanley, not so optimistic about the markets. According to MarketWatch, he is the expert who: “correctly predicted the 2022 stock market sell-off, in which the three major indices posted their worst annual losses since 2008.”
the S&P 500 could find a bottom around 3,000 by the end of 2023. The index was trading around 3,919 at last check, according to FactSet.
That’s a 30% drop in actions. Sounds impressive?
Even a 30% drop it would not be enough to return the Shiller PE Ratio to its historical average. Right now, that would require a 41% drop.
Sidebar: How did we get here? Wolf Richter explains our current situation in his own unique manic style:
The era of money printing and interest rate suppression in the United States, which began in 2008, gave rise to all sorts of things, and easy money went on and on, and all this money needed to find a place to live. where to go , and then money printing went crazy in 2020 and 2021. And the things it gave rise to just got bigger and bigger, and crazier and crazier. And a lot of these things are now in the process of falling apart, I mean falling apart…
In other words, as I said before, what goes up must come down. mean reversion It is the most powerful force in finance.
A recent Bloomberg article added a crucial piece of context that most bullish investors seem determined to overlook:
One of the factors driving Wilson’s bearish view is the impact of peak inflation. US stocks rose last week amid signs that a slight easing of price pressures could give the Federal Reserve room to potentially rein in its interest rate hikes. Wilson, however, He warned that while a spike in inflation would support bond markets, “it’s also very negative for returns.” He still expects margins to continue to disappoint through 2023. [emphasis added]
Wilson’s predictions are not new. He has published two successive articles that cast a bleak outlook for stocks this year. He firstas of December 14:
We expect corporate sales volumes and pricing power to deteriorate, leading to lower earnings, even without a recession, hence our lower earnings estimate of $195 per share for 2023. When we consider factors such as purchasing managers index (PMI) data, the yield curve, and correlations between earnings growth and the speed of Federal Reserve rate hikes, we anticipate year-over-year earnings growth in 2023 it will probably be materially negative.
the next and shrillest warning appeared on January 5 of this year, beginning with the words “Don’t expect much from US stocks.”
The multiple bear market rallies for US stocks throughout 2022 suggest that many stock investors have not adopted the likelihood of longer higher interest rates and an economy slowing materially, even as economic data and Treasury yields continue to sound warnings.
Here’s why this is important: bear markets cannot end without “capitulation”, which means that the bulls give up. Once buyers turn bearish, prices may return to reality. (Remember, paying 40% over the historical stock average, based on fundamentals, is a gamble that its value will increase by 40% in the near future. It’s not rational! But a mental competency test is not required to open a brokerage account…)
We believe that US stock investors may be overly optimistic and see two key reasons for concern going into 2023:
Unattractive valuations: Equity risk premiums (the potential excess return that can be expected from investing in stocks versus risk-free bonds) remain relatively low…
High earnings expectations: Consensus 2023 earnings projections for the S&P 500 Index are around $230, a number that generates earnings growth of around 5%. To us, this estimate does not take into account the challenges companies are likely to face, especially when they start to feel the pinch of tighter monetary conditions. These include lower sales volumes and loss of pricing power, potentially at the same time.
To summarize Wilson’s arguments against a new bull run in stocks:
- Stocks are already expensive
- are priced at other 5% profit growth
- Investors are ignoring both the effects of Fed rate hikes and recession indicators
As Benjamin Graham pointed out in his masterpiece The smart investor: a stock bought with the hope that its price will rise soon regardless of its ability to produce dividends is a speculation, not an investment.
All speculative bubbles end the same way: in a panic. Until that moment of capitulation and the subsequent race for the exits, the most rational and prudent will take another course.
After reading all of this, you may be wondering, “How can investors protect their savings from loss if stocks are expected to fall?”
Fortunately, there is still some time before panic sets in. We don’t know how much time we have, and we don’t know how bad it will get. However, for those of us biding our time, there is good news on the horizon…
The Consensus Is In: Gold Is Set For A Big Year
Zach Scheidt, editor of the Lifetime Income Report, recently highlighted the answer. He thinks gold will have a record year:
I predict that the price of gold will reach $3,000 an ounce within the next year.
He bases this prediction on two factors:
- He dollar peaked in September 2022 relative to other currencies, and since then it has plummeted 11.5%.
- Bitcoin (BTC) has crashed since peaking in late 2021, and it’s not stealing gold’s traditional role as potential safe haven right now.
According to a good number of analysts and market veterans, gold is ready for a Great year (I covered this recently). Here are two highlights:
ole hansenSaxo Bank Head of Commodity Strategy:
The metal has also been boosted by the reopening in China with pictures of very crowded gold markets seeing pre-moon demand and the PBoC. [People’s Bank of China] announcing that it bought 62 tons of gold during the last two months of the year.
david neuhauserFounder and Chief Investment Officer of Livermore Partners:
I think when you look ahead, you start to look around and think ‘where is the safest place for your investment in terms of assets?’ Y the only place to really go for alternative now is goldAs for knowing that you are not going to see that degradation of your heritage. [emphasis added]
So if you’re looking for protection against stock market crashes, especially if you’re nearing retirement (and don’t have time to wait out a prolonged bear market), diversify your savings with physical gold could be right for you. If you are curious and want to learn more, we have just released an updated version of our free information kit on precious metals IRAs right here.
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