The analysts and indicators that predicted this stock market crash said it will be worse than the 2008 financial crisis. They predicted the crash, while Wall Street bulls in the throes of euphoria were blindsided. So their projections about how bad it will get bear significant credibility as markets decide what to do next.
Euro Pacific Capital CEO and chief strategist Peter Schiff predicted this market crash in September 2018. And he nailed the timing. He told the New York Post it would hit within the next two years, near the end of Donald Trump’s first term. When the rally came crashing down in February, his prediction came true like clockwork:
Obviously, there is a whole lot of optimism — but there is a very good chance the US economy is in recession within the next two years. This is already the second-longest economic expansion in history.
Further the timing projection came with a harrowing warning:
We won’t be able to call it a recession, it’s going to be worse than the Great Depression… The US economy is in so much worse shape than it was a decade ago.
Schiff was right. Household debt, student loans, auto loans and global debt had already surpassed pre-2008 levels when Schiff gave this interview in September 2018. Let’s not forget that Schiff predicted the 2008 housing market crash and the Great Recession while mainstream analysts literally laughed at him on CNBC.
While macro indicators of systemic risk were already topping pre-2008 levels about two years ago, they’re even worse today.
David Rosenberg, chief economist and strategist for Gluskin Sheff & Associates, warned in January that the household debt bubble would crash the recovery. He also tracked the historical New York Fed recession risk model to time a recession for the next year.
Moreover, the Buffet indicator (total U.S. market cap relative to GDP) reckons the stock market has further to fall than in 2008. In fact, valuations at the peak in February were far more overheated than before the 2008 Financial Crisis and 2000 Dot Com Bubble.
As far back as 2014, senior Forbes contributor Mike Patton argued the next recession would be worse than the last. The reason? Back then “the Fed had a balance sheet of about $800 billion.” In 2014 it topped $4 trillion, and remains that high today.
Many economists say it’s that absolutely cosmic level of monetary liquidity that drives the systemic risk taking underlying bubbles and consequent market crashes.
If markets end up with a crash as severe as 2008, the Dow won’t bottom out until it reaches the 13,600 handle. From its intra-day peak of 14,198 on Oct. 11, 2007, to the market low of 6,469 on Mar. 6, 2009, the Dow Jones Industrial average lost 54% of its value. If it loses 54% of its 29,551.42 all time high on Feb. 12, 2020, the Dow will plummet to just below 13,600 before this bear market is over.
The broader S&P 500 index lost 57% of its value from its Oct. 9, 2007 peak of 1,565, to the market low close of 676 on Mar. 9, 2009. If it should lose another 57% from its Feb 19, 2020 all time high of 3,393, the S&P 500 will drop below 1,470.
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Last modified: March 9, 2020 8:04 PM UTC