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.