Please do make any financial decisions based on the contents of this blog. My blogs are designed to be thought-provoking and introspective, not financial advice. Please do not act on any document unless it is titled “Statement of Advice.”
1) More countries are admitting to recession
While I argue that pretty much every country in the world is in recession for the reasons laid out in this article, The UK and Japan are openly admitting it (finally), and there seems to be more headline consensus in both mainstream and social media that most advanced economies are heading this way if not already there.
This is a stark contrast to government and media sentiment over the past 12-18 months. “The economy is in great shape,” has been the mantra, with absolutely NO evidence supporting such claims.
You can’t just print trillions, trade the nation insolvently into oblivion, and expect the economy NOT to deteriorate.
It would appear that our governments are running out of data to manipulate to understate the devastating impacts their crazy fiscal policies and insolvent trading are having.
2) Half of Wall Street are saying we’re in a tech bubble
BUBBLE = “It’s just going to keep going up!” + Expand + POP! + Rich & informed people getting out at the top + “Mum & Dad” investors losing extraordinary amounts of money
We’ve been here before. Every bubble in history looks like this. A line that may as well be perfectly vertical. While NVIDIA, the darling of the S&P500 and NASDAQ has performed tremendously well, it is significantly overpriced, as are most of its peers in the index.
According to the Wall Street Journal article, many key players on Wall Street believe this to be a bubble, and I agree with them. When Wall Street sentiment crumbles, you know the bubble is about to burst.
3) The sectors dominating recent growth get slammed during recession
Source: Fidelity 2024 https://institutional.fidelity.com/app/item/RD_13569_40890/business-cycle-update.html?pos=T
For obvious reasons, life-essential sectors such Consumer Staples, Healthcare and Utilities are recession-proof and continue to attract investment even while the broader economy is suffering.
Non life-essential sectors like Communication, Tech, Financials and Industrials by contrast tend to get absolutely slammed during recessions. It is these sectors that contributed approximately 80% of the recent growth in the index.
Source: Fidelity 2024 https://institutional.fidelity.com/app/item/RD_13569_40890/business-cycle-update.html?pos=T
While the life-essential sectors will pick up some of the slack in the next correction, the sheer magnitude of the drop in the non life-essential sectors will be far greater.
4) China
Don’t get me wrong, China’s economy is still in a very very bad way and it could take 5-10 more years to recover to pre-pandemic levels.
But at least their stock market is appropriately priced.
Yes, that is a Forward P/E Ratio of 8.2… not 18.2, not 182, but 8.2, and that is with some fairly dire earnings projections as they fall into deflation.
(“Single figure P/Es… deflation… what?”)
In other words, while the US stock market is currently priced 53% above its long-term average, with a P/E of 32x, the Chinese stock market is priced 32% below its long-term average with a P/E of 8.2x. “Cheap as chips mate!”
The very existence of an attractively priced market gives institutional fund managers a potential new home for their holdings.
The recent 50%+ drop in this ETF is exactly where the rest of the world could be heading.
Please do make any financial decisions based on the contents of this blog. My blogs are designed to be thought-provoking and introspective, not financial advice. Please do not act on any document unless it is titled “Statement of Advice.”