The worst is yet to come according to the latest report released by Eric Sprott at Sprott Asset Management. In his most recent newsletter “It’s the Real Economy Stupid” Sprott suggests that there is a large disconnect between the real economy fundamentals and investor sentiment. The report nicely summarizes several real economic indicators and draws parallels to the trends in the 1929 great depression. Here is a snippet of the report.
We find the similarity between the 2008 economic collapse and the 1929 economic collapse disturbing. Don’t get sucked in… the real economy is still struggling and the market has yet to reflect this. In 1932, the Dow Jones Industrial Average bottomed 90% below the September 1929 peak. The S&P 500 Index peaked in October 2007 at 1,576, and from our brief analysis above we can easily calculate a drop in the S&P 500 of as much as 88% from that peak using our ‘double trouble’ scenario. At the very least, under all of our scenarios it appears that the S&P 500 Index will test the March 2009 low of 666. Judging by the continued declines we are seeing in the real economy, we expect that test to happen sooner rather than later.
In our view, the only thing propping this market up is investor sentiment. Earnings have not improved. Keep it simple, stupid – investing is and has always been about the real economy, and this market is ignoring the hard data. You can invest in sentiment if you want to, but as we have said before, we prefer to invest in real things.
Now I don’t agree with everything that he says in his article, but he does make some compelling arguments that no investor in todays market should discount. I suggest you give it a read and form your own opinons.
Read the full article: It’s the Real Economy Stupid.
