The Market Meat Grinder

Plus creeping stagflation, an "epic debt vortex" and other upbeat news...

(Source: Getty Images)

Joel Bowman, reckoning today from Buenos Aires, Argentina...

“It’s a bloodbath,” reads a headline at Vice magazine.

“Dow suffers longest losing streak since 2001,” says MarketWatch.

“Market may become a ‘meat grinder of forlorn hope’ for dip buyers,” echoes CNBC.

“The crypto crash is just the beginning,” chimes The Atlantic, with a distinct whiff of undisguised glee.

It’s easy to pile on when markets are down. The lame jokes practically write themselves. (Here’s one: How do you end up with a million dollars in tech stocks? Start with two million! Okay, okay... now don’t forget to tip your waitress. Word is, she was long Luna…)

But it’s important to remember – even in the era of digital depersonalization, when it’s fashionable to take swipes at folks we’ve never met and will never know – that real people have lost real money here. And that’s a hard pill to swallow. 

The darlings of the Dow Jones are off 12% year-to-date. The S&P 500 is down more than 16% over the same period. And the tech-heavy Nasdaq is well into bear market territory, lower by 25% on the year and off by ~27% from its all-time high of just over 16,000, clocked last November. 

The real question people want answered, one children have chorused from the back seat since road trips began, is “are we there yet?” And by “there” we mean, of course, a firm market bottom, a floor upon which to begin rebuilding. 

Schaeffler CEO, Klaus Rosenfeld, says no. “We have to prepare for a stagflation scenario,” he told CNBC earlier this week. (Readers looking for a quick refresher on “that ‘70s term” might like to review a column from this space, penned a few weeks back, unambiguously titled Stagflation!) 

The gist: stagflation refers to a period of economic contraction coupled with persistently high inflation. Not “transitory” inflation, mind you... like we were told we’d have. Persistently... like we actually have. And not economic expansion... as was forecast for Q1. But contraction... as was measured in Q1. 

But to “Psaki back” to that burning question – are we there yet? – one would have to know what “there” actually looks like. If “there” is a Tech Bubble Version 2.0, as some have suggested, we’re nowhere close. The Nasdaq fell 78%, top to bottom, in the infamous tech wreck of 2001... about three times as far down as today. 

“This is just the beginning,” reckons Bonner Private Research investment director, Tom Dyson. Here’s a snippet of the market note he sent to subscribers this past Wednesday...

The way I see it, we are now compounding the world debt at a terrifying, unsustainable rate. We’re entering a debt vortex. That’s the first problem.

The second problem is the way economic progress is measured, which is GDP. But GDP isn’t a good way to measure progress as it’s a measure of income. And every dollar earned as income is a dollar someone else had to spend in consumption.

So GDP is really a measure of consumption. And in our debt-financed economy, consumption comes from debt. So if we stop borrowing, GDP is going to contract.

So I’m certain – unless interest rates begin falling again – we’re heading into a recession. We may already be in one. I’m also expecting a big liquidation in the stock markets, and a big spike in bond defaults and bankruptcies. 

Our advice remains the same: set the dial to maximum safety mode. That means holding lots of cash, lots of gold, silver and other scarce durables, and avoiding stocks and bonds.

“But Tom, the S&P 500 has already fallen 16% this year. The Nasdaq is down 26%. Bonds have had their worst start to the year in history. Aren’t we getting close to the bottom yet?”

We’re in the final stage of the greatest financial experiment in human history. The managers of the system created an epic credit bubble. Now they’ve popped it. I think the stock market is warning us of very hard times to come. This is just the beginning. 

In addition to safeguarding capital, Tom is working with Dan and Bill to help readers identify niche “tactical trades,” taking advantage of tiny pockets of the market where he sees real value (typically by investing in companies producing real earnings by delivering real goods to real people... quaint idea, huh? Who’d a thunk it?)

If you’re interested in protecting your hard-earned amidst the market chaos... and maybe making a buck or two along the way... you can sign up for Tom and Dan’s research below. You’ll receive twice-weekly market updates (from Tom on Wednesday and Dan on Friday), plus in-depth monthly issues, a host of research reports and even invitations to private Zoom calls with Bill’s private network of investors. 

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And now for Bill Bonner’s missives from the past week...

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That’s all from us for today. Tune in tomorrow for your regular Sunday Sesh, where we take a look at value, through the eye of the beholder...

Until then…

Cheers,

Joel Bowman

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