Jim Colquitt says the Recession has begun and market participants need to consider what that means for them given their circumstances.
While the Nikkei has rebounded which is to be expected of every large fall, Colquitt says to expect it to be a process, not a straight line down or up. He reckons based on his z score model, the fair value for the S&P 500 is in the order of -50pc below where it is and this could either be a tsunami (I call it the Great Kahuna) or a slow train wreck. His model tags fair value around 2,500 which is close to the Covid lows.
Take your pick but to me any strength is an opportunity to lighten up. Buy and Hodlers would just have to see what happened to AD8 to know what holding can be like.
No one can really tell what portends ahead, we can only deduce the health of the market. A healthy person showing immense endurance and stamina could also suddenly collapse from over exertion and over indulgence brimmed with overconfidence, a sudden severe heart attack becomes a real wake up call, and after the initial attack, a recovery is to be expected ….but would this person be as confident and robust as before ….unlikely right? And that’s how the markets will likely behave going forwards- over confidence and over indulgence over exuberance will pave the way for caution, after the face rationalisation, re calibration and reining in of expectations. Given where we’re at with market valuations, taking a lead from Hussman’s guide, market internals would begin to erode and the likelihood of a mean reversion would begin to take centre stage. Considering what’s to come, it is hard to be optimistic, even earnings growth for mega techs would likely begin to taper and US political uncertainty and global geopolitics would continue to be points of concern.
The US market had become a giant casino for a new generation of investors/traders who have not experienced a recession in both economy and markets..one would really learn until he/she have had experienced the pain associated with losses. Capital preservation should be at the core front and centre of every investors mind.
We just ask ourselves- why did the AI mega tech stocks reacted badly to the recession narrative? Weren’t they meant to be as solid as a rock, and remain unencumbered as it was made out to be perceived? Obviously they are not, and their valuations don’t stack up and still don’t despite the recent decline. So what is really the thesis of the perma bulls that the present lofty valuation of the US market can be sustained, what happened to their soft landing narrative ? Wall St needs to be bullish to stay profitable.
As I told you before, it doesn’t matter how good your company is , a market tsunami would take all out to the cleaners, and you saw how badly hit precious metals stocks ( Gold stocks are not Gold as I told you) -final word from Vern Gowdie
Winning is Not Losing
and from me
No Denial No Procrastination
If it Hasn’t Happened It Does Not mean it Won’t
Doing Nothing is Doing Something
WE ARE THE CHOICES WE MAKE
Take care and Stay Safe Out of Harms Way.
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