Well I don't know what else to say the stock market is just
depressing. We just closed out the first six
months of the year. So time to celebrate everyone.
We're halfway through we've made it halfway through 2022.
I hope you're all having a great 2022 because the stock market is
not the market. Just posted the worst first half
of the year in decades when they say decades.
They're not exaggerating accelerating inflation and
Rising interest rates. Fueled a months-long route that
left few markets unscathed, the S&P 500 felt 21% through
Thursday suffering, its worst first half of a year since 1970.
So this is literally the worst start to a year halfway through
the year since 1970. That's what we're investing in.
So if someone tells you this sell-off is just
run-of-the-mill, it's not that bad.
They're being dishonest. This is a bad cell off.
Like this is a really bad one. We are going through a really
bad sell-off and that should be said we are making it through.
This now I will say if you've made it this far, you just got
to Pat yourself on the back, you're staying invested through
this turbulence. Through this volatility through
non-stop depressing, sell-off month, after month, then you
probably have what it takes to be a long-term investor in my
opinion, you'll probably keep going, which is a good thing.
But it's times like this, when you really want pick up, you
want some positive news. We've already been investing
this year for six months and the sell-off started a couple months
into the end of last year. So we've in in a bear market.
Now, for quite some time, this constant painful dragon sell-off
in the market and you just want to hear some positive news.
Just some relief that things are going to be better in the
future. Well, in comes Michael burry and
Michael burry is not someone to paint a Rosy picture.
That's not really his thing. In fact, his thing is kind of
the opposite. He is the the, the one that
gives the warnings, right? And the latest warning, he just
gave. This is just today.
Adjusted for inflation, 2022 is first, half of S&P, 500 is down,
25 to 26 percent. So if you actually factor in
inflation, you're actually more poor, this year than just your
losses in the stock market because you have to factor in
that, the little money you do have after the big decline is
even worse less due to inflation.
So, the S&P 500 is down, 25 to 26 percent.
The NASDAQ is down 34 to 35 percent Bitcoins down a A
Goering, 64 to 65 percent that was multiple compression.
Next up, earnings compression. So maybe halfway there, maybe
just, maybe the NASDAQ can fall another 35%, maybe the S&P, 500
will fall another 25%. That's Michael burry Staats and
you know, a lot of people say that he's kind of like the one
hit wonder. He's the big short guy.
I made a video on this. He's not he's made consistently
good calls all throughout his career and I consider him to be
one of the best five. Is alive today, actively
investing. I really think he's topped are
so These Warnings that he's giving, you know, I don't think
that they're just fun tweets from.
I actually think that he does have a thought that the S&P 500,
the market will continue to go down to some extent, of course,
Michael burry has position as portfolio with this in mind.
Dr. Burry has both long positions and short positions.
He's long a bunch of very low valuation.
Deep value stocks like Pharmaceuticals and he's short
companies like apple, which was It's kind of one of the big tech
companies. The last one to fall, it was
trading around 155 when he started his short.
So he's probably already made money on that short position.
So he's actually positioning his portfolio in a way that reflects
I think his bearish view on the market.
So in this video, we're going to go over a few different things.
First of all, we'll be examining the implications of Michael
buries claim that there's going to be learning compression on
top of multiple compression. And what, that even means what's
the difference between earnings compression and Oppression, I'll
explain it. And I'll go over an article
where other strategist think that this could be a problem.
And I also want to give an opposing view to Michael burry
one where they think that things aren't quite as bad as a markets
preparing for both Goldman Sachs and JP Morgan have research out.
That shows that the markets are already pricing in a pretty
significant downturn and I think there's a chance that investors
might be overdoing it. So in this video we'll be going
over both perspectives, Michael buries and the big Banks and
we'll try to make sense of it. Now before we jump, Into that.
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All right, now, let's go ahead and jump into this news.
Like I said, this is just the worst.
There's no other way to say it, you know, this is the worst
start to the stock market since 1970.
So, since a lot of us have been alive, you know, I look at the
analytics are a lot of us are young enough that we weren't
even born before 1970. I know I have some older viewers
that are in that camp but I was born in 89.
So this is the worst first half of the stock market.
Since literally before I was even born, that's how bad this
year has been and it shows I was not spared from this.
You know. I don't try to time the market.
I've looked at the data and in aggregate over long periods of
time. It's best to just keep invested.
So that's what I've been doing. I'm currently down 31% on my
girls portfolio, the dividend portfolio with those defensive
companies has held up better, but this one is just getting
crushed. In this market, it has not been
spared. So looking at this, we have
really bad news. It's just depressing.
We have Michael burry saying this is going to get worse.
We're only halfway there. We have literally people right
now quitting just throwing in the towel.
This news made me laugh. The Jupiter Co quits a 68
billion dollar firm to sit on the beach and quote, do nothing.
This guy is just done, he's checked out.
He's been dealing with this market for the past seven
months, and he's probably like, you know, I don't need this, I
already have money. I want to sit on the beach and
do nothing. And you know what?
I don't blame. Him, I don't blame the guy.
If I had enough money to retire, I probably want to sit on a
beach and do nothing as well, especially with the market over
the past two years. It's been absolutely horrible.
So you know, this is the attitude people have and I want
to go into Michael buries prediction.
What he's claiming is that we first experienced multiple
compression. Multiple compression means if a
company was trading at a, let's say, 30 PE ratio and it gets
down to a 15 P/E. But the earnings are expected to
be the same, that's just multiple compression.
Meaning the multiple that people are willing to pay for that same
earnings has been cut in half from a 32A 15.
That's basically what happened in Netflix Netflix, didn't
really say that they're going to be earning less money.
In fact, they actually beat their earnings estimate by 40%,
so they actually beat on their earnings, but investors didn't
like the story. There was qualitative news, it
change. So the multiples compressed and
Netflix isn't the only company that's had this happen.
Basically, all of them have had this happen, multiples?
Compress for Facebook. Facebook is still expected to
earn a lot of money, but the multiples came down.
Multiples, came down for PayPal. Still expected to earn a lot of
money. It was the multiples that
compress the same thing for for apple and Microsoft and Ali
Baba. And basically, all of these
companies the earnings projections are still positive
for the S&P 500, this year, it's still expected that these
companies are going to earn more and more money, but the
multiples have compressed now. Michael burry sing part 2.
We've had the First Act and now we're going to have this second
act after the multiple compression, which is that that
PE ratio compressing next up, earnings compression.
The actual earnings are going to go down.
Here is an example of this, with Microsoft, you have the PE
Ratio, everybody knows about this, it's the price to earnings
multiple. So the multiple you're paying
for their earnings of the company, the P stands for Price,
which is the multiple Microsoft price.
Went from 35 PE to 24 so it's the same earnings, but we're
paying a lower multiple form. But now we have a risk, a new
risk in the market of the actual earnings.
Going down, if Microsoft earns less money over the next six
months, and they are expected to, then the E has to get
revised lower which would make the stock price drop even
further than what it has. And this is already starting to
crack just a little bit. Take a look at Microsoft's, this
is their projected earnings. And you can see the earnings
revisions earnings revisions up our five and EPS revisions down
or 15. That means five analysts think
that they'll earn more 15 think that they'll earn less.
So the aggregate analysts estimate for Microsoft their
earnings in the future has been moved down which makes the stock
more expensive. And it makes the company sell
off and this is exactly what Michael burry he's talking
about. So let's go ahead and dive into
the reasons. This poses a risk for the stock
market. We know that multiples have come
down but now it's time for earnings to get compressed as
well. U.s. profit margin.
Estimates are too optimistic putting stocks at risk of more
declines. When Wall Street analysts
downgrade their expectations this is according to Goldman
Sachs group they say quote while rotations within the equity
Market have signaled expectations of slowing growth
index. Valuation does not appear to be
providing a buffer for uncertainty around the path of
future earnings. So this is kind of their fancy
way of saying investors. Kind of expect that we're going
to see slowing growth. Potentially, at least like a
technical recession. People not spending quite as
much money because of inflation, but that's really not being
priced into the earnings earnings models of these
companies analysts have not brought the models down.
They say economists have begun to cut their top down, economic
forecasts for GDP. And yet fundamental company.
Analysts are sitting there like a deer in headlights, not
knowing what to do with the numbers.
So we have economists saying, Hey, look everyone.
The economy. Slowing down.
GDP is going to slow down. We might go into recession.
People are going to spend less money, and then we have
fundamental company analysts saying, they're going to earn
just as much. My company's doing good.
Look at the bright future. It has right?
There's this conflict between economists and fundamental
company analysts and they're not agreeing together.
Goldman Sachs thinks the economist are probably right.
The economy is slowing down and eventually the fundamental
company analyst the analyst it make these earnings projections.
They're going to have to Are these earnings projections.
That's what the economists. That's what Goldman Sachs thinks
is going to happen. And Goldman Sachs goes on to say
quote we continue to recommend investors focus on stocks where
they can be relatively confident confident in the for trajectory
of earnings including firms with stable growth and the healthcare
sector. Michael buries top holding right
now is Bristol-Myers Squibb. So he's right there with them.
He has most of his money 13% in a company that is in healthcare,
right? A pharmaceutical.
Coal Company, people still have to buy drugs, especially, Cancer
Treatments. Whether or not we go into
recession, those earnings are pretty solid.
He says, which has grown in earnings in the last several
recession. So even during recessions
pharmaceutical companies continue to grow their earnings.
So I think that Michael burry is cracked in the analysts
eventually eventually, and I think it's going to be late in
the game and I'll start eventually going to revise the
earnings of these companies lower.
And we seen enough hints of this.
I just did a video on people. Laid off from work, there's more
and more companies. In fact, a huge uptick of
companies laying more and more people off work.
The reason that they do that is preparing for bad times.
We also have little hints from different companies like
Microsoft like what Microsoft has done over the past three
months. They said that they're going to
earn less money because of Foreign Exchange, right?
That was the first thing. They said that they're cutting
their advertising budget. That was the second thing.
Then they said that they're actually not really hiring any
more. Right there are slowing down on
their hiring, not layoffs. They don't want to give that
term, but they're slowing down on their hiring.
All these companies, they have a big connection with the economy,
like Microsoft, like Salesforce, like so many other companies are
starting to just pull things back a little bit, they're
giving these little warnings. These little hints that they're
concerned about the future and I wouldn't be surprised at all.
In fact, I kind of expect it to go into this next earning
season. And here, that this stock sold
off 10% because of lowered guidance, this stock sold off
5%, because a lowered guidance, that's the word you're going.
Here over and over and over again.
Lowering guidance, lowering guidance, earnings revisions
downward lowered, guidance. That's what I think this next
earnings season as going to be all about.
So, while I have that concern and I fully believe that the
stock market could go down another 10, 20 % I remain
invested, because I know that my companies can make it through
this, this might be a difficult time, but all the companies that
I'm invested in have very strong balance sheets and even though
the earnings May compress along with the multiple have a very
long-term View and my Rata G is just to write it out and just to
hang on. And I know that this is kind of
the bearer of bad news the - you.
So I wanted to offer a positive View and this comes from
JPMorgan. JPMorgan actually has the view
that things might not be so bad. That the fares of the recession
might be overblown and I wanted to give this perspective as well
because Michael buries view is kind of like the most bearish
one and JP Morgan's is a lot more optimistic.
Here's the summary of it right off the bat.
They say if there is no reception Action.
Which is our view. Their view is that there's
literally no recession right off the bat.
They're saying that their base case is that we're not going to
go into a big recession, which is definitely a positive thing.
So there's still people that believe even analysts that work,
at Banks like JPMorgan. They don't necessarily think
we're going into a terrible recession and they say that if
we don't go into recession like investors are expecting right
now then the really risky asset prices right now are too cheap.
So the riskier stocks that have just been crushed over the past.
Six months, they're too cheap if we don't go into a recession.
Now they go on to clarify this because JP Morgan here is saying
that they have kind of a contrarian view.
Everyone thinks things are gone to crap right now.
They think everything is going down the drain, which it
certainly feels that way, right? If we've been investing in the
past six months, you just think the world is basically coming to
an end and JP Morgan saying we don't think things are great
right now, but we think that investors might be pricing in
too much. They say that many Equity market
segments are down 60 to 80%. That is a substantial decline 60
to 80% and we know that's true, many companies that we follow
have been down that much or more, they say positioning and
sentiment of investors is at multi-decade lows.
That's also true. So it is not that we think that
the world and economies are in great shape.
But just at the average, investor expects an economic
disaster. If that does not materialize
risky, asset classes could recover, most of their losses
from the first half. Half are bullish and are out of
consistent. Out of consensus view is hence a
forecast of a lost year, a recovery of H1 losses in Risky
assets. So, that's basically a summary
of their take care. That it's not, that things are
in great shape. But investors are expecting
economic Calamity, economic disaster, and if that doesn't
materialize, then there's a lot of upside to these stocks and
I'm kind of viewing things in line with in line with JPMorgan
here. You know, I think that there
might be earnings or visions In the future.
But I don't know how much I've you us going into a horrible
recession, like an 09 recession. I think many investors have
recency bias. We know this is a true
phenomenon where we view, things are going to happen, just like
the recent past and the most recent past real recession.
We've ever gone through was the 08-09 Great Recession.
And that was a particularly devastating horrible recession,
because we had a housing mortgage crash, a credit crunch
a Little financial disaster with banks going under, we had things
happening that I really don't think are going to happen again.
And even though we're facing inflation, right now, we're
facing Logistics problems. These things could unravel,
there is a chance that inflation will come down and if things
don't go quite as bad as investors are expecting, their
could be upside too many stocks. Now, here's where they get into
the details of their contrarian view here.
That stocks may actually have more upside than downside.
They say that Equity sentiment investor Meaning and Market
internals have been bearish. Resulting in the worst annual
start for equities and around, 100 years with the exception of
the Great Depression. So this has been an
extraordinarily bad first half of the Year portfolios are
defensively positioned for recessionary outcome and
corporate fundamentals should exhibit relative resilience for
the rest of the year despite some softness and corporate
guidance. So they're saying that even if
there's some softness and corporate guidance and we get
all those revisions downward and Lowered guidance that were
probably going to get even. So portfolios are defensively
positioned people raced into dividend stocks and Consumer
Staples. They raced into all the
defensive companies and left. All the risky ones and
recessionary, outcomes and corporate fundamentals.
Should exhibit, relative resilience.
So, even companies right now, their balance sheets are very
strong, they're set up. Well, for a big recession, for
example, the financial Market, JP Morgan Bank of America
Citigroup Ally Financial, all these different financials are
selling off like crazy. And that's again because
investors get really scared when we think we're going into
recession, but they don't have the same balance sheet.
They had back in 2008 companies right now are much better
capitalized. Much better prepared to go
through rough times and they did back then, now they also mention
the earnings projection hair. JP Morgan does hold the view
that the S&P 500 will grow, its earnings this year in aggregate,
so they don't have the same view as Michael.
Barry that earnings are going to compress across the board.
They think it's going to grow, but less than the consensus
their estimates. For for 2022, is for the S&P 500
to have earnings per share of 225 compared to the consensus of
to 29. So JP Morgan thinks that the S&P
500 earnings will grow around seven percent for the year.
And this is less than consensus but it's still positive.
So you have the two point of views here.
One from JPMorgan, where they have more of a positive view on
things they think there's actually Upside to the second
half of the Year simply because investors are expecting total
devastation. And they think there's a chance
that that's not going to happen. If Devastation and disaster,
economic disaster doesn't happen.
Then JP Morgan will probably right people probably make money
the end of this year, if Michael berrer.
He's right, and the earnings forecasts, just get crushed for
these companies and the economy compresses and we have all sorts
of issues. Then obviously this sell-off has
further to go. So let me know what side you
fall on. Do you think the second half of
2022 will be a positive experience for the stock market?
Will it go up from here or do you think Michael berrer?
He's right, we're about halfway through this sell-off and we'll
go down maybe another 20, 25 percent.
Let me know what you think. I'll look in the comments below
and I'll talk to you in the next episode.