Stocks Poised To Plunge -55% (Or Worse) Soon | Henrik Zeberg
By many measures, stocks are richly valued.
And by measures like the Buffett Indicator, they're the most overvalued they've EVER been.
Does that strongly suggest a downwards market correction lies in store for 2025?
Or is there a good reason that "this time is truly different" and a new bull era for stocks awaits?
To discuss, we're fortunate to welcome to the program market analyst Henrik Zeberg, publisher of the Zeberg Report.
Once credit spreads start to widen, he thinks the S&P may crash -50% (or more) in 2025.
Here are my key takeaways from this discussion with Henrik:
Henrik describes the current market valuations as unprecedented, with the Buffett Indicator showing stocks are more overvalued than at any point in history. He believes the bubble in equities is fueled by excessive liquidity and speculative fervor, particularly in assets like cryptocurrencies and meme stocks. Cryptocurrencies, including Bitcoin, are nearing all-time highs, reflecting speculative behavior. He draws parallels to prior crashes and warns that this bubble will result in a significant correction.
Henrik predicts a severe recession in 2025, potentially worse than the 2008 financial crisis. This will follow a market peak reached in the next 1-2 months, with the S&P 500 reaching 6,300-6,400 before collapsing. He emphasizes that recessions typically follow market peaks by 2-3 months. The depth of this recession will be amplified by the bursting of interconnected asset bubbles in equities, cryptocurrencies, and private equity markets.
Henrik’s market outlook is comprised of two phases. They are:
Phase 1 (Deflationary Bust): this phase will involve a sharp market sell-off, with the S&P 500 potentially falling 50-55% to around 3,600. This will mirror prior downturns like the financial crisis of 2008. The deflationary environment will also see unemployment rise, consumption decline, and financial markets contract.
Phase 2 (Stagflationary Environment): Central bank and government responses, such as aggressive monetary easing and fiscal stimulus, could spark inflation. Combined with stagnant economic recovery, this will result in stagflation. Commodities, particularly gold and silver, will likely surge as monetary stimulus fuels speculative demand in real assets.
Henrik notes that leading indicators, such as yield curve inversions, have been signaling economic distress for years. Current labor market data show rising credit card delinquencies and unemployment claims, suggesting the real economy is under strain. Payroll revisions for 2024 are expected to reveal weaker job growth than officially reported. Henrik points out that lagging indicators, such as unemployment, often fail to capture the immediate pressure on households and businesses.
The Federal Reserve is criticized for reacting to lagging inflation data instead of forward-looking economic indicators. Yield curve inversions, including the 10-year minus 2-year spread, signal looming recessions but are often dismissed. Henrik warns that long-term rates will eventually spike due to inflation fears, exacerbating economic challenges. He also highlights that rate cuts typically occur when the economy is already deteriorating, as seen in prior crises.
Although housing is not as over-leveraged as it was in 2007, Henrik warns that rising unemployment and reduced consumer spending will weaken the market significantly. Existing home sales are already declining. While the housing market might not collapse as it did during the financial crisis, Henrik expects meaningful declines in prices during the recessionary phase.
During the deflationary phase, Henrik anticipates a strong dollar, with the Dollar Index (DXY) rising to 122 levels last seen in the early 2000s. This will coincide with lower yields and a favorable environment for cash and long-term bonds (e.g., TLTs). In Phase 2, central bank interventions will create a commodity boom, driven by speculative money flows. Gold, silver, and other real assets will become key investment opportunities as inflation accelerates.
Henrik criticizes tariffs proposed by the incoming administration, describing them as consumer taxes that could exacerbate inflation and economic instability. He warns that tariffs, like those imposed in 1929, can deepen economic crises by restricting trade and increasing costs for households. He advocates for global trade as a mechanism to drive economic recovery and growth, emphasizing the importance of specialization and international collaboration.
For the full interview with Henrik Zeberg, watch the video below:
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