What are the bears saying about finance?
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Several renowned financial “bears” have recently come out of their lair to vociferate against the optimism that gripped the markets at the start of 2023, which they deem false and unwelcome. All consider that the great bear market of 2022 is not over and that much more misfortune is to be expected. Here’s what Michael Burry, Nasseem Taleb, Nouriel Roubini and Jeremy Grantham think?
“Sell! », « Disneyland, it’s over! », « Too much debt! », « Massive liquidation! »
The negative omens announced by these bears take in some cases a telegraphic turn. For example, Michael Burry tweeted in early February aimed at investors: “Sell. During January, he compared the rebound in markets to the fleeting rally the S&P 500 experienced following the dot.coms boom, warning investors that the index could crash another 50% below 1,900 points (as of March 28, the index was at 3,968 points).
Nouriel Roubini denounces the disproportionate levels of debt that have piled up in the economic system. “There is so much debt in the system that an attempt to reduce inflation not only causes an economic crisis, but also a financial crisis,” the economist told Kitco News in mid-January. “They are going to feed each other, and in the face of an economic and financial crisis, the Fed and the other central banks are going to have to deflate and not raise interest rates as much. »
“However, he continued, this will not save the economy from a recession. If inflation is not brought back to its target level, inflation expectations may become unanchored, triggering a stagflationary debt crisis. According to him, we must still expect a fall in prices of 30% and the only refuge remains gold. He also predicts that it will rise to US$3,000 an ounce.
Reading Nasseem Taleb is very simple. “The stock market is far too overvalued for interest rates that are not 1%, he judges. I think we could have a lot, lot of price collapse. Money no longer flows freely. Disneyland is over. »
In early March, Morgan Stanley’s team of strategists also issued this warning: “The stock and credit markets are struggling against the Federal Reserve’s likely rate hike path. Equity valuation is at an extreme. »
Valuations are still far from historical averages
Jeremy Grantham, co-founder of the investment firm GMO, which accurately predicted the falls of 2000, 2008, 2018 and 2022, published his latest analysis on January 24. It presents well-formulated arguments predicting a further fall in the markets.
He declares at the outset that the easiest part of the stock market crash is over. The second part is yet to come since, “although the most excessive effervescence of the stock market bubble has been cleaned up, valuations are still very far from their long-term averages”. He expects the correction to continue further, adding that it should be expected that it will even take us below the long-term trend, as it has always been in major episodes of decline.
Real estate represents a real risk
The buzzword is ‘polycrisis’, according to Jeremy Grantham, and the most potentially damaging part is real estate because of its large footprint in the real economy. The global real estate bubble crisis has started to manifest itself, especially in Canada and Australia, but it must be remembered that real estate busts take two to three times longer than stocks to unfold.
Jeremy Grantham acknowledges that the chances of a continuation of the stock market meltdown are lower than they were at the start of 2022. But too many risks remain in the system, he judges, to escape it : the inflation which persists, the rates which go up again, the war in Ukraine and its consequences on the prices of food and energy. “Rarely have so many severely negative factors been present simultaneously,” he writes.
More recently, in a March 16 webcast from Rosenberg Research, Mr. Grantham considered the additional factor of the current banking troubles, saying they could increase the damage from a bursting bubble. In that interview, he said he predicted another 24% drop in the markets to 3,000 points — if the US is lucky. But the S&P 500 could also crash to 2,000 points, he warned, another 50% drop, the same level Michael Burry predicted in January.
