‘The largest financial crisis in history’: A 47-year market vet says the COVID-19 crash was merely a ‘fake-out sell-off’ — and warns of an 80% stock plunge fraught with bank failures and bankruptcies

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When it comes to market forecasts, David Hunter, the chief macro strategist at Contrarian Macro Advisors, doesn’t beat around the bush.

“I think we’re going to see something that includes a very large financial crisis — probably the largest financial crisis in history — including major bank failures, not so much here, but Europe, maybe Asia banks, and also a lot of involuntary debt liquidation,” he said on “The Contrarian Investor Podcast.”

“The first phase started in March,” he added.

Hunter — a 47-year market veteran — separates his ominous call into two phases, both of which are part of the same overarching “bust.”

There are many facets to Hunter’s forecast, so it’s important to account for each properly. Here’s how he divvies it up: 

Phase 1: Includes a “melt up” scenario for stocks. During this time, Hunter thinks the S&P 500 could rally to anywhere from 4,200- 4,500, alongside a Nasdaq composite which, by his estimate, could touch 15,000.  

Catalysts include: Central bank liquidity, the passage of a stimulus package, shifts in sentiment, and bullish momentum begetting bullish momentum.

Timeline: Potentially, the next two to three months.

Phase 2: The unwind. In this period, Hunter’s forecasting a swath of bankruptcies, bank failures, involuntary liquidations, an 80% stock crash, and a massive expansion of the Federal Reserve’s balance sheet to as much as $20 trillion in response.

Catalysts include: A central bank misstep, lack of government assistance, immense debt build-ups, and time (remember, some businesses have been closed and sans revenue since March).

Timeline: 2021

A ‘fake-out sell-off’

The way he sees it, the original fallout stemming from the coronavirus was a “fake-out sell-off.”

“So I was a little taken by surprise by the sell-off — the magnitude of sell-off,” he said. “I expected a 10% pullback from the highs of February, and we obviously got 30% plus. But I took a look at the work and said, ‘No, this does not take away the melt up scenario.’ In fact, this is kind of a fake-out sell-off.”

Although it coerced his forecast to the fast track, that episode, in his mind, was a mere blip on the radar of a much larger, debt-and-leverage-fueled trend that’s been building for years. It’s a phenomenon he’s previously referred to as a “super-cycle,” which stretches from one economic depression to the next.

In the near future, he thinks the colossal amount of debt and leverage that the financial system is predicated on will start to falter. After all, large percentages of the global economy are running at a fraction of their normal capacity.

That’s why Hunter thinks it’s too soon to give the all-clear. What’s more, add in a few trillion of government and Federal Reserve stimulus into the equation, and now we’re even deeper in debt. 

The Fed’s role

To him, the bridge between the two phases has been supported by Federal Reserve liquidity — and he thinks it’s bought the market a few quarters of reprieve. That’s why things in the market are relatively calm — for now.  In the next …read more

Source:: Business Insider


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