Artificial Wealth vs GDP: Why Earnings and the Stock Market Will Get Crushed

by Mish Shedlock, Mish Talk:

Here’s the case for an earnings smash accompanied by a continuation of the stock market crash.

Ben Hunt: “In late 1990s, the Fed began to use monetary policy as a political tool to make us richer than our economy could grow, inflating home prices and financial asset prices without (they thought) ever triggering wage/price inflation in the broader economy.”


Imaginary Wealth and Hyper-Financialization

Change “richer” to “feel richer” and the idea is perfect.

Earnings Forecast

Which Earnings Estimate Do You Believe?

  • Wall Street predicts +10% S&P earnings growth. T
  • The Belkin Report forecasts -48% S&P earnings slump, like 2009.

Actual earnings could be even more extreme or somewhere in the middle, but I expect Belkin to be in the ballpark.

Case for an Earnings Crash

  1. Recession
  2. De-globalization costs
  3. Retirement of 22 million boomers will lower productivity and slow spending
  4. De-carbonization is very expensive, do we even have the natural resources?
  5. End of a 40-year bull market in interests rates
  6. Potential for protracted war in Ukraine
  7. Central bank concern over reigniting inflation
  8. Renewed union push
  9. Wealth impact of stock market decline will itself slow spending
  10. Various bubbles have just begin to pop

Feedback Loops

Some of the above points are circular, feeding on themselves. But I do expect a reinforcing feedback loop. There is a wealth impact of a stock market and crypto plunge that feeds on itself.

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