Last fall I tried to publish my book, Winning Big in Stock with I Ching, but was unable to do so in time to sound the alarm about the imminent stock market crash, which I correctly predicted. To counter any potential claim that my observation was based on hindsight, I time-stamped my prediction with a blog in October 2021, depicting the following scenario.
The black swan event that I mentioned in my blog was the Ukraine–Russia war. The stock market began to unwind right after its peak in November 2021. In just a few short months the market indices suffered losses of 20 to 30%, reaching a trough in June 2022. Practicing what I preached, I sold a good 90% of my stockholdings, which weighed more heavily in material and technology, and managed to avoid a 30%-plus shrinkage of the value of my portfolio. The stock market then briefly recovered by 10% in August, only to fall again in September. Several pundits now opine about an increased probability of a recession, though it is already a foregone conclusion in my opinion. The market has lately been quite volatile because there are still investors who believe that the market will rebound because the economy is still strong and unemployment still low. Some economic advisers even continue to advocate that the current environment offers good buying opportunities. On the contrary, I see the future differently. When you shoot an arrow straight up into the air, it will decelerate before reaching its highest point and then reverse direction, accelerating as it plummets to the ground. There are clear signs that the economy is slowing, as reflected in the housing sector.
I now predict a second crash this winter, wreaking even greater havoc in the equity market.
Because of the Ukraine–Russia war, the energy crunch will be especially acute for Europe and Japan, which include the world’s third, fourth, and sixth-largest economies. Equally important is the devaluation of these nations’ currencies stemming from the strength of the dollar as a consequence of rapidly escalating interest rates in the United States because these countries have to pay for their energy supply with petrodollars, i.e., revenues denominated in United States dollars. Prohibitively expensive oil and gas will shatter many industries in these regions.
It would be euphemistic to characterize the global economic condition next year as a recession. It will look more like a depression than a recession, and persist much longer and cause more pain than expected, because the Federal Reserve’s inflation-fighting strategies are destined to fail despite its super-aggressive monetary tightening policy, which I will describe in my next blog.