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Will Michael Barry's other dark prediction come true? Hello fellow investors, how are you? Michael Barry has fired heavy artillery again, scaring some investors. Will markets fall further? Will inflation go away or is it here to stay? If you stay, I'll answer those questions. I'll talk about the two scenarios that economies could face in the future and whether or not there is a more likely economic recession in the United States in 2023.
Finally, in my conclusions, I'll give you my opinion about Michael Barry's predictions for 2023 and my outlook for the stock markets this year. Michael Barry has another gloomy prediction for investors that comes right on the heels of a major warning from the International Monetary Fund. The entity has recently said that we should expect a tougher macroeconomic environment in 2023, as it believes that at least a third of the world will enter a recession, especially as the three largest economies in the world slow down: the United States, the European Union, and China.
It was previously said that if the United States sneezes, the world gets sick. This phrase was taken as a consequence of the Great Depression of October 1964. In 1929, when the New York Stock Exchange crashed, the impact on the US had repercussions worldwide, hence the phrase. Currently, the personal savings rate in the United States is plummeting, so it's not surprising to assume that this could also lead to a slowdown in savings in the rest of the world.
Do you think there will be an economic recession in the United States in 2023? Leave your comment. Take a look at this graph where we can see the current personal savings rate in the United States, which is below 3%. If we consider fewer years, for example, from 2016 onwards, the image shows that even through the crazy spikes in savings rates during the COVID era, when everyone was receiving stimulus checks or transfers, the average, marked with a red line, generally sits around a savings rate between 7 and 8%.
Analyzing this collapse in the savings rate is relevant because of the relationship between saving and consumption. Likewise, the three largest economies are expected to slow sharply by 2023. Yes, a recession for much of the world is likely. Today, for the first time in 40 years, it seems that China will grow more slowly than the rest of the world.
This is probably also what inspired them to lift the COVID-19 restrictions they had in place. But will the United States avoid falling into recession? Leave your comment. Unfortunately, in 2023, the vast majority of countries are fighting against stubborn inflation, which brings us to Michael Barry's warning.
Take a look at this: Michael Barry's tweet from a few days ago. Inflation reached its peak, but it is not the last peak of this cycle. We are likely to see a lower, possibly negative, CPI in the second half of 2023, and the United States, from recession by any definition, will cut spending, the government will stimulate spending, and we will have another peak in inflation.
It's not difficult. Michael Barry tells us that inflation has already peaked and is going down, but the war is not over yet. won, and that the United States will enter a recession by any definition, which ironically refers to the fact that last year the United States had two consecutive quarters of negative GDP, and the White House was trying to invent another definition of recession to deny it, but the consensus is that technically a recession is two quarters of negative GDP.
Do you think Michael Barry is right in his prediction? Leave your comment. Michael Barry says the United States will enter a recession and inflation will fall. And that could lead the Federal Reserve to cut interest rates and stimulate, along with the government—that is, send stimulus checks again and print money like there's no tomorrow to quell the fire.
That's why Barry says there will be another spike in inflation later on. Speaking of which, California has been sending stimulus checks since October 2022, a state that represents about 11% of the US population. Guess what happened? There was a temporary increase in spending and potentially a small boost to inflation simply because California sent stimulus checks.
Imagine if the faith to start printing money again and the government started sending checks during a recession to prop up that threshold Lower incomes wouldn't be anything new because that's what was done during the COVID crash. If you think about the people who are suffering the most right now due to rising food prices and basic necessities like gas, maybe Michael Barry is right.
However, there's still a school of thought that it might actually be more likely that we'll follow the pattern of the last 40 years, from the late 1970s and early 1980s. Do you think inflation will come down and stabilize this year? Actually, the United States has been in a period of more than 40 years since 1980 where inflation remained quite stable, even close to 0 or 1%, which you can see circled.
This motivated central banks to worry in some cases more about deflation than inflation, leading many countries to adopt policies known as zero interest rate policies, or even, especially in Japan, negative interest rate policies. This boils down to whether you think inflation is transitory or not. That is, asking ourselves if inflation was really caused by supply chain disruptions, massive money printing, and The stimulus during the COVID-19 pandemic era, and finally the war in Ukraine—if those were the true causes of inflation, then it would make sense that we would actually return to an era of stable inflation and perhaps continue that inflation trend leaning towards deflation.
Therefore, this would mean fighting deflation for the next few years when companies start competing and lowering prices. But Michael Barry warns otherwise, that potentially inflation will fall only to return to another inflationary cycle. If that happens, it could even cause the markets to crash again.
Do you like the video? Subscribe then, or I'll call the police. On the other hand, if significant deflationary elements started to appear in companies, for example, in construction materials and the cost of goods sold, perhaps many would consider what that means, not only in the context of costs but also in what competitors might be considering when selling.
In other words, some speculate that if prices continue to point downwards, perhaps some companies will start to think that their competitors are going to lower prices, and then they will have to lower theirs as well. Prices too, and because they think others might lower prices, even some companies might try to lower prices first.
Basically, it would be making sure people buy company X's products and not ours. This sounds good for what we want to buy, right? This scenario, if it happens, would be radically different from 2021. In January of that year, almost every earnings report was talking about how great their purchasing power was, everyone boasting about it and their great pricing power.
Now I think very few companies have pricing power left because they have to start cutting prices due to the complex economic scenario. In conclusion, Parry is right that inflation is falling. We're going to see the continuation of this deflationary cycle, but is this really going to lead to another inflationary wave in the future?
Well, if we go back to the trend of the last 40 years, no, if we break that trend, monetary policy is going to be in a completely new world, and everything we 've been used to in the last 40 years is going to be turned upside down. So, in a way, Michael Barry here is fighting against history by arguing that we're going to have a second massive inflation spike because the most likely scenario seems to be the first one I mentioned.
My outlook for 2023 is to wait for the recession to begin because at the moment it is much more likely that will happen than the opposite due to the United States having reached historic levels of inflation, which produced its interest rate hikes that were too rapid and pronounced, which will affect its economy, in my understanding, and the effects have not yet materialized.
All this is beyond whether there will be a hard or soft recession, which is unknown. But what is known is that once the recession begins, the S&P 500 can easily fall 20% or more. Once the recession occurs, a fall will begin in which stocks will then bottom out and give investors great opportunities to invest for the long term.
One of the most noticeable characteristics of a recession is that unemployment rises, but this is usually a lagging indicator, meaning the rise usually comes later, as we are seeing now. There was a lot of interest rate hike and the labor market is in a solid state. So in my opinion, it will take some time and the process that I will tell you I mentioned before that we'll start seeing big venture capital investments again, more people buying Teslas, longer wait times to buy Teslas, people buying private jets—all those things that will be seen again at the beginning of the stock market and economic recovery.
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