Morgan Stanley Issues Major Warning for Investors
From Peter Reagan at Birch Gold Group
In 2022, there were several signs that indicated the U.S. was in economic recession.
These signs included (but weren’t limited to): Back-to-back quarters of negative GDP growth, red-hot inflation all year, and major market indices tumbling 10% to 33%. Bonds also had their worst year since before the Civil War.
Despite signals pointing to the U.S. economy slowing in September 2022, it appears that careful massaging of the definition of the word “recession” brushed off the idea it was actually, technically in a recession. (That would be a bad political look, after all!)
Most of the mainstream media played along.
But you know who wasn’t fooled? Well, me, for one – and Morgan Stanley’s top financial experts.
Pay attention – this analysis is based on data, not on hope or wishful thinking…
Morgan Stanley predicts more pain ahead
While optimistic investors are grasping at any opportunity to bleat, “This is fine!” (like reacting favorably when inflation slows by 0.1% in a month).
Michael Wilson, who is Morgan Stanley’s chief equity strategist, isn’t so optimistic.
Sidebar: How did we get here? Wolf Richter explains our current situation in his own uniquely manic style:
The era of money-printing and interest-rate repression in the United States, which started in 2008, gave rise to all kinds of stuff, and the easy money kept going and kept going, and all this money needed to find a place to go, and then money-printing went hog-wild in 2020 and 2021. And the stuff it gave rise to just got bigger and bigger, and crazier and crazier. And much of this stuff is now in the process of coming apart, I mean falling apart…
In other words, as I’ve said before, what goes up must come down. Reversion to the mean is the most powerful force in finance.
A recent Bloomberg article added a crucial piece of context that more optimistic investors seem determined to overlook:
One of the factors driving Wilson’s bearish view is the impact of peaking inflation… amid signs that a modest ebbing in price pressures could give the Federal Reserve room to potentially slow its interest-rate hikes. Wilson, however, warned that while a peak in inflation would support asset prices, “it’s also very negative for profitability.” He still expects margins to continue to disappoint through 2023. [emphasis added]
Wilson’s predictions aren’t new. He’s published two successive articles that projected a grim outlook for the economy this year. The first, from December 14:
We expect corporate sales volumes and pricing power to deteriorate, leading to profit declines, even without a recession, hence our lower earnings estimates… When we consider factors such as the Purchasing Managers’ Index (PMI) data and correlations between profit growth and the speed of the Fed’s rate hikes, we anticipate that 2023 year-over-year earnings growth will likely be materially negative.
The next and more strident warning appeared on January 5th of this year.
Here’s why this matters: Economic cycles end with “capitulation,” when investors become pessimistic, and asset prices, no longer buoyed by fresh speculative capital, can return to reality. Remember, paying 40% over the historic average price for an asset is a bet that its value will increase 40% in the near future. It’s not rational! (But there’s no mental competency test required to play this game…)
As Benjamin Graham pointed out in his masterpiece The Intelligent Investor: an asset purchased with the hope that its price will soon rise independent of its value is a speculation, not an investment.
All speculative bubbles end the same way – in a panic. Until that moment of capitulation and the subsequent rush for the exits, more rational and prudent folks will take a different course.
Fortunately, there’s still some time before panic sets in. We don’t know how long we have, and we don’t know how bad it will get. For those of us biding our time, though, there’s some good news on the horizon…
The consensus is in: gold is poised for a great year
Zach Scheidt, editor of Lifetime Income Report, recently put a spotlight on the answer. He thinks gold will have a record year:
I predict that the price of gold will reach $3,000 an ounce within the next year.
He bases this prediction on two factors:
- The dollar peaked in September 2022 relative to other currencies, and has since crashed some 11.5%.
- Bitcoin (BTC) has crashed since peaking in late 2021, and isn’t stealing gold’s traditional role as a potential safe haven right now.
According to quite a number of analysts and market veterans, gold is poised for a great year (I covered this recently). Here are two highlights:
Ole Hansen, head of commodity strategy at Saxo Bank:
The metal has also been buoyed by the reopening in China with pictures of very crowded gold markets seeing pre-Lunar demand and the PBoC [People’s Bank of China] announcing it bought 62 tons of gold during the last two months of the year.
David Neuhauser, founder and chief investment officer at Livermore Partners:
I think as you look forward, you start to look around and think ‘where is the safest place for your investment in terms of assets?’ and the only place really to go as an alternative now is gold, in terms of knowing that you are not going to see that debasement of your assets. [emphasis added]
So if you’re seeking protection against economic crisis, especially if you’re nearing retirement (and don’t have time to wait out a long bear market), diversifying your savings with physical gold could be right for you. If you’re curious and want to learn more, we just released an updated version of our free info kit on Precious Metals IRAs right here.2023, Featured, market bubble, morgan stanley