Considering that the US is facing a 4.8% GDP contraction and a 14.7% unemployment rate, with 33 million jobless claims so far, and most part of its economy is still in lockdown, there is a clear divergence on how the Main Street and Wall Street are facing this crisis, since markets are still climbing higher, and the S&P 500 has just seen its biggest monthly increase since 1987 stock market collapse, while the Nasdaq is now positive year-to-date.
Hunter has boldly stated on the Palisade Radio podcast that in the “second shoe dropping, in the second stage of the bust, it’s when we’ll see the true financial carnage come,” and the analyst predicts a huge amount of involuntary debt liquidation, maintaining that we are about to see a “free-falling financial system because banks will be failing around the world.”
According to his view on this issue, the market has already assimilated the preliminary crash boosted by the global health outbreak, which would be “the first shoe”, however, it hasn’t prepared yet for what’s coming next. To aggravate the situation, these incidents are happening on the last stage of what he calls a “super-cycle”, described as an economic cycle that starts and ends in depression.
The 47-year market veteran says, that with the significant amount of stimulus to restrain the sanitary-crisis-related panic, deployed by the US Treasury and the Federal Reserve, markets are likely to quickly rally to fresh unprecedented highs. But this action have only bought investors a little more time.
Hunter asserts that there aren’t people out there searching for loans to start new businesses, so that money goes into the residual, which is the capital markets – the bond market and then the stock market. “That’s what fuels rallies at times when the economy looks awful,” he says.
Therewith, the strategist foresees that all of this stimulus will potentially prompt the S&P 500 up, and, by Labor Day, it will possibly have past the 4,000 mark. But even so, that’s only postponing the inevitable fate, as he declares that when investors enthusiasm and eagerness lowers, and the feeling is disrupted by the unfolding of further consequences, things will get ugly.
He reiterates that “the second shoe dropping will be the deeper part of the bust,” sustaining that a recovery can bee engineered, or at least a semblance of a recovery, and that would provide liquidity and keep things going for a while, but there’s been a lot of permanent damage done because of the unprecedented way this outbreak has taken us down.
Hunter’s logic is that a number of businesses don’t have the fundamental staying power required to survive a collapse like this, resulting in a series of bankruptcies and shutdowns, causing permanent damage to the economy. But he believes that the market is failing to assess the extent of this problem just yet.
In addition, Hunter affirms the amount of leverage in the financial system is not sustainable – and it is all downhill from this point, with a declining economy and many broken Main Street businesses, as he states: I knew that when we had the next downturn, that leverage would turn into something that would make 2008-09 look not mild, but certainly much less. In that second stage, I expect the stock market to roll over and head into a bear market that will be the biggest bear market since the 1929 stock market crash.
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