Nearly a fifth of public companies are “zombies” propped up by debt.
With its “zombie” public companies and small-business failures, the economy is “dead,” and nothing can stop it from happening. Figures state that the so-called bubble has been pumped with the bogus supply of cash and should have busted during 2020 but the Covid Pandemic has intrusively made it bigger. It won’t bottom until 2023. “The crisis ahead of us is a big detox of the biggest financial drug stimulus in history” The stock market will bottom late in 2022 or early 2023. It will be “the lowest stock market of our lifetime.
If we analyze the Megaphone pattern -The stock market crash of 2020 was just a time of depression. When “it” happens (likely in the next 2–3 trading sessions), it may not be a “final” bottom but definitely a 3rd wave-like panic bottom.
That said, active investors with cash, new money, or looking to rotate will be the core to an analysis of the dumb money” and “smart money” going into and out of it.
What are the forecasts for the economy and stock market?
The economy bottoming in 2023 and the market bottoming at the end of 2022 or early 2023. The country was in a very short depression in 2020.
When COVID hit, we had a short-term depression. It took GDP down [showing a contraction of 7.5%]. That’s a depression, not a recession. We’ve seen a V-shaped recovery for 80% of the nontravel, non-entertainment sectors — [that is], the non-heavily-affected-by-COVID sectors. People are acting now that we’re going to recover everywhere else too. Well, no!
About 19% of publicly traded companies are zombies: They’re operating but can’t pay the principal and interest on their debt service. We have this zombie economy that’s just going to keep stumbling along; small businesses can’t float bonds [and are failing]. We’ll just keep having more business failures into early next year. The vaccine[s] won’t come out on a broad enough scale to be effective until the second or third quarter. By the time the [government] comes up with the new plan and the RBI reacts by next year, it will be almost too late. The economy is already dead.
To elaborate on the forecast for the stock market.
We-know-what hits the fan around December 2022. The cycles we look at point to our seeing the lowest stock market of our lifetime then, give or take. If you buy stocks at that time, you’ll never see those lows again. The indicators are really good as long as the central banks aren’t monkeying with the economy so dramatically [as they have been]. In late 2008, early 2009, they turned on the endless money spigot. But we can’t keep having artificial stimuli.
What’s the base for the market forecast?
We are seeing a megaphone pattern. The trend line is going up with each new high, but the trend line on the bottom is going down. The lower lows started in early 2018. The bottoms keep going lower. Right now, we’re getting a throw-over rally where it tries to break through but fails. Ever since the January 2018 bubble high, we’ve had corrections that have taken us to new lows; then the market takes us to new highs with stimulus — and then we get a new low.
What does the megaphone pattern predict?
The market can’t keep going up. We’re getting real close to a peak. The next new low is 42% down on the Sensex; the Nifty could be down 50%.
What might happen when there’s another stock crash, and the market goes to that new low?
Investors [Big and Small] are finally going to say, “We’ve seen enough. It doesn’t matter how much they stimulate — we always have another crisis, and the economy fails again.” Do you know why it fails? Because it’s dead. Banks keep zombie companies’ debt going, and [there’s all that] stimulus. The central banks have created a big monster, and [eventually] it’s going to look like a fool’s game.
Why is the stock market hitting record highs right now?
As long as this market goes up and quickly recovers, people don’t see much downside risk. That’s why the dumb money [Small Investors] is jumping in and buying on 10 times average. They say, “How can you lose? Buy in this market. If it goes down, the short-time bull investors just drive it right back up.” And that’s what they’ve done.
What’s the smart money [Big Investors] doing?
Selling into this rally over the last year.
Who, specifically, are “the dumb money” buyers?
The dumb money is small traders loading up on stocks because of greed and an effect called the gambling rush. When there was a kind of V-shaped recovery after the COVID [-caused] crash in March and the bull marketers stepped in, the dumb money [started investing] like there was no tomorrow.
If people take drugs or alcohol for a long time, they always break down. You don’t drink two bottles of vodka a day and not break down. You either die or end up in detox. This crisis ahead of us is a big detox of the biggest financial stimulus in all of history. It has to happen at some point. It’s just a question of when. The smart money has been selling into this rally just like they did in the 2007–2008 crisis. The key thing is that when the smart money decides it’s over, they’ll start the downtrend that breaks the back of the dumb money.
How long will the smart money keep selling?
The smart money will go with this as long as they think the market will keep the thing going. There’s a point when you make that new high and you don’t make a new high again. I think we’re topping now. One needs to be cautious.
Thoughts about the deficit?
We have a $3.7 trillion deficit the year 2020, which is 18% of our GDP; it could [go to] $4 trillion easily by end of 2021. Wait till we actually go into the downturn. I see the deficit topping out in around 2024.
Sum up of forecast for the economy and stock market?
We’re at the breaking points. One looks like an idiot — until it happens. Then everybody looks — and feels — like an idiot. For me I would love to see it coming rather than a surprise this will allow me to have new opportunities to rise up.