A few weeks has passed since my January 20, 2022 blog about a potential bear market lasting for a few years. It is very clear by now that that worldwide bear market has started. The market has largely completed the first major leg of drop. There will likely be a winding bounce from here lasting a few months. But the second major leg, especially for Nasdaq, will probably happen by the fall.
Can the markets still bounce
strongly and go up a lot more? It is not impossible and has happened in the history,
but it seems like a more and more remote possibility.
Here are my predictions for the short
and long term markets, conditioning on that US doesn’t have a nearly civil war kind
of panic after 2024 election. In fact, the bear market may eventually end with
2024 election and the 2025 inauguration, at least that is my hope.
1. Nasdaq and
S&P will drop 40-50% from its recent peak over the next few years. The other
global markets will also drop a similar amount. Maybe the bear market could
eventually end around the 2025 inauguration. But if the US falls into a civil
war kind of panic and reality, hell will be in sight.
2. The timing
of the largest drop will vary across indexes given their different components. For
example, Nasdaq will likely drop the most and will finish most of the expected
drop first. S&P will finish most of its expected drop later.
3. However,
the next few months from March 2022, markets will enjoy a winding but
significant bounce, recovering most of the losses suffered in the first leg of
the drop by the peak of the bounce. This would be time to get out, or set up
shorts near the end of this bounce, which will be the start of the second major
leg of the drop.
4. There will
still be many sharp ups and downs after these first two major legs of drops. In
percentage terms, they will still be quite big even if markets would have
dropped substantially after the two major legs. Markets will not settle for a
final low until quite a few such ups and downs, probably at least two or more years
from now.
5. US is
likely to have a recession in late 2023 or 2024. The recession will be
relatively mild in terms of employment and output.
6. Some of
the current darling stocks will drop very substantially. For example, can you
imagine Tesla at around or below $200 again?
7. USD has not
peaked yet but is close to its peak. After peaking, it will fluctuate at a high
level for a couple years before a very significant leg down lasting many years.
So don’t bet that it will go down or go down soon.
8. Gold will
slump from this level too but will get out of the slump before all the other assets.
The time of its bottom could be in 2023. It will likely have a strong bull
market from there, appreciating many times. Gold companies will take longer to
bottom, say another year after gold bottoms.
9. US
housing bull market from 2011 is only about half done. It will go up slowly for
a few years and then up sharply for some more. So prepare for about another 10
years of US housing bull market and a price appreciation of a similar amount of
what we had since 2011.
10. Chinese
housing market and stock market will hold up a bit better than the rest of the
world for a little longer. Just holding on there, unlikely to go beyond its prior
peaks. Then they will likely have a very serious slump that will not end until say
5 years later.
11. Hong Kong
stock markets look extremely cheap to
most people but will drop at least 50% from its peak in 2018. It could drop 2/3
from that peak too in extreme cases. If it does drop that extremely, it is probably
wise to load up the assets if it still has a somewhat independent future.
12. Commodities
will also be among the last to slump in this cycle but it will have a pretty
bad slump too. It could be the most lucrative investment opportunity among all
for the many years after the slump is over.
13. Value will
significantly outperform growth in the next 10 years. Quant funds will do
relatively better too.
