More Loss and Pain Ahead for Stock Investors!

08 Jul

More Loss and Pain Ahead for Stock Investors!

Regular readers know that we enjoy citing the market observations of Michael Burry.  

You probably remember Burry if you saw the 2015 movie The Big Short.  If you haven’t seen it, it is probably worth streaming just for an alternative look at how things work on Wall Street.  Burry, a real-life rock-drumming, hedge fund manager is played by Christian Bale.  When disaster struck the subprime mortgage market, Burry’s clients made about $700 million from his fund.  

In addition to warning about the real estate bubble, Burry more recently warned about inflation’s return while most of the financial establishments were in denial. 

Burry dubbed the Fed-inflated markets “Greatest Speculative Bubble of All Time in All Things.” Now with those bubbles popping and after all the carnage and mayhem suffered by stock and crypto investors in the first half of this year, Burry says there is more to come.

In fact, he suggests that the losses could double from here.

“Adjusted for inflation, 2022 first-half S&P 500 down 25-26%, and Nasdaq down 34-35%, Bitcoin down 64-65%,” Burry tweeted.  “That was multiple compression. Next up, earnings compression. So, maybe halfway there.”

Here are the bullet points Business Insider used to describe the latest from the Scion Asset hedge fund manager:

  • Michael Burry warned the plunge in stocks and crypto might only be at the halfway point.
  • “The Big Short” investors expect weak corporate earnings to fuel the next leg down in markets.
  • Burry predicts a slump in consumer spending will weigh on company profits later this year.

There is a little more detail in a recent piece by John Hussman, president of Hussman Funds, so we will finish with a couple of points from his recent client advisory letter

The danger for investors is that they have learned all the wrong lessons from this bubble. They’ve come to believe that valuations can be ignored, and that Fed easing is omnipotent. They’ve come to believe that “it always comes back.” They’ve learned to embrace passive investing, because they look back over their shoulder at prices that have gone nowhere but up, and conclude that attending to valuations would have been costly and useless. They’ve come to imagine that more risk means more return, regardless of the prices they pay to get in. All these misguided beliefs will be their undoing….

When the collapse comes (and I suspect it will), don’t blame Fed tightening for bursting the bubble. Once “bubble” is in hand, “burst” is inevitable. Blame the decade of reckless monetary policy that encouraged the bubble in the first place.

If you would like to avoid further losses in stocks, bonds, and cryptos, move to the safety sidelines no with a wealth-protecting gold and silver portfolio.  Speak with a Republic Monetary Exchange precious metals professional today.