The Worsening Stock Market Reset: 50% MORE to Come.

hey everyone me kevin here i'm regularly

asked how much further down can the

market fall and when should we expect

a bottom folks we're all looking for a

bottom and the next set of research

should be alarming to you but it should

also be used as a tool to prepare

yourself to make sure you're properly

diversified and prepared for what's to

come in markets and potentially position

yourself the way the research suggests

because in this market there are no free

handouts while we look for the bottom

with the exception of course of public

who will give you one totally free stock

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now it should come as no surprise to you

that google searches for the phrase

recession have skyrocketed at the

beginning of this year and financial

advisors bearish sentiment has been

skyrocketing since actually february of

2021 reaching a peak and alignment with

google searches for recession just in

the last few months well folks we're

regularly told that there are two things

that hold the market up first are what

are known as price to earnings multiples

this is when we look at a company and we

say okay at the end of the year how much

money is this stock actually going to

pay me and let's say the stock pays you

10

and those earnings could either be in

the form of dividends or they could just

be in cash that sits in the company or

buybacks don't worry so much about that

just imagine you run a lemonade stand

and at the end of the year you make 10

well somebody might pay you for that

business a multiple known as the price

to earnings ratio and if that multiple

is let's say 20

then the value of your lemonade stock

per share might be 200

and what happens in a recession is

investors look at this and say you know

what we just can't afford right now to

pay these sorts of multiples the times

20 here so what we're going to do is

we're going to slice that and we're

instead going to offer you a lower

number

like

10. now we're going to take your ten

dollars of earnings multiply it by 10 a

multiple and now your company is only

worth 100

this is an example of multiple

compression how 50

of the share price of a company has

evaporated simply because the market is

less willing to pay

for those earnings

now some like michael bury warn us that

the price to earnings crash is only half

of the battle and that we face another

problem and that is the problem of eps

write downs remember in this example if

your stock made ten dollars

and you received a multiple of ten you

would get one hundred dollars as your

share price

but

while we wrote down the price to

earnings multiple what happens if we now

have to come in here and say ah crap

we're not making ten dollars anymore

because we're in a recession well now

folks you have phase two of a bear

market and that is the write down of

earnings per share now credit suisse

provides us some excellent research they

say that valuation compression which is

a fancy way of saying it price to

earnings multiple that first part may be

complete and they suggest that now

phase one of our bear market is driven

by d ratings on the back of higher rates

and recession concerns again fancy

really fancy big word way of saying that

forward price to earnings multiples are

now roughly in line with where they

should be

in a decline in fact you could say see

this here in their price to earnings

model suggesting that the decline in

valuations is complete that we have seen

market signals this dark gray line align

with actual price to earnings

projections this is a very good thing

again it means that the first half is

complete however if you take a look at

this chart we can see that in the 1990

recession followed by the dot-com bubble

followed by the recession the great

recession in 2008 and followed by the

covid recession in every single one of

these instances we have seen price to

earnings multiples decline an average of

25.9

and by some degree we've already

exceeded that with a decline of 28.8

percent but take a look at forward

earnings per share projections in 1990

earnings per share projections how much

your lemonade stand is making came down

seven point nine percent in two thousand

seventeen point eight percent in the

great recession thirty eight point nine

percent and in the coveted recession

twenty one point three percent with an

average of 21.5 percent of decline well

how much from peak to trough have

forward earnings per share declined in

the current bear market

folks the answer is

zero

that means we still have to go through

the pricing of a reduction of earnings

per share and all of this is happening

at the same time that our recession

risks are being complicated by wages

continuing to be strong employment

continues to be strong as we saw in the

june jobs report that just came out in

july we saw that we're still gaining

jobs like crazy we're still seeing wages

increase to the tune of over three and a

half percent every single year on a

monthly basis

this trend isn't breaking we're still

seeing

more job openings than we would expect

and by some accounts we haven't actually

reduced the fact that there are 1.9 job

openings per unemployed person and this

is all being complicated by take a look

at this wages being stickier because of

reduced immigration

less outsourcing by domestic companies

and higher minimum wages these higher

minimum wages being so common because

the service economy needs so much more

help right now and folks like airport

staffers need to get paid more to be

motivated to show up to work or to take

the job in the first place and if you

add on top of this inflation risk the

risk that we have inertial inflation so

risk number one of high inflation being

wages continue to expand and continue to

grow making the fed aggressive

essentially guaranteeing us that we're

going to get larger and more aggressive

federal reserve hikes on top of that we

have the risk of inertial inflation

which is the inflation that we get when

real estate

forces people into renting because

mortgages become so expensive which

drives up the costs of renting

properties which increases the owner's

equivalent rents which increase cpi or

inflation

again so in other words we have this

disastrous situation where we've only

gone through about 50 percent of the d

rating so 50 d rating is not debating

although some might debate this is

complete but on top of that we have the

very aggressive plus

aggressive fed

plus well being led by led by what

sticky wage growth

and inertial

inflation

meaning the fed is unlikely to u-turn

anytime soon meaning we're likely to go

through the next phase the next phase is

the earnings

recession the eps recession we're going

to talk about how much of a decline we

could face and how long it might take to

experience it on this particular chart

you could see that credit suisse argues

that the gray line here or earnings

revisions have not yet actually occurred

to drive equity performance into the

territory here that is usually in

recessions we would expect to see

equity performance decline to below this

line here implying we still have quite a

ways to go and in this we'll talk about

their research suggesting

how far that is and how long that's

going to take in fact we're going to

start talking about that right now right

after i mentioned that today over 30 new

lectures are being posted in our courses

on building your wealth imagine 30

detailed style of youtube videos

providing you more education on how to

build your wealth whether it's in real

estate sales real estate investing in

stocks and psychology of money and

building your wealth and trying to think

of some different scenarios for building

wealth depending on where you are in

life or where other people are in life

as a teaching example we also have four

fundamental analysis streams that were

posted just this week where we do some

fundamental analysis together folks go

to medkevin.com join and take advantage

of that coupon code before it expires

because the price goes up regularly so

folks now the big question

how long

coupled with

how much more

so that we can try to understand

a potential

bottom now credit suisse tells us that

the average decline in forward estimates

for the last four recessions based on

international brokerage estimates has

been 22

and the average decline in

earnings is 19

going all the way back to world war ii

now we believe that the earnings decline

could actually be worse though because

profit margins at companies are starting

at such a higher level today because

they've had so much pricing power and so

what does that mean in terms of how much

credit suisse says we have ahead how

much damage we have ahead and how long

this will take well they argue that the

trough

will come four months before the trough

in earnings and earnings downgrade

cycles tend to last

19 months so let's think about that for

a moment

if right now

we

are

here

then that means we have a potential we

have not seen any earnings downgrades

yet

we have a potential of having to wait

19

months

unfortunately right now we're in the

seventh month of 2022 which means we

might not see the trough of earnings

revisions until april of

2024 however we tend to see a bottom of

the market four months before that which

would actually then come right at the

end of 2023 and the start of 2024.

in this particular chart credit suisse

warns that it's very common after this

trough to take two to three years to

return to normal as a result credit

suisse argues that we could see anywhere

between a 15 to 20 percent additional

decline in markets between now and the

bottom which is likely to occur in their

opinion in

2023

likely towards the end of 2023. now

anytime we talk about pain in the stock

market we oftentimes like to talk about

opportunities this is why we do so much

fundamental analysis in our course

member live streams that occur every day

that the market is open which you can

get lifetime access to the courses and

any of the courses come with live

streams via the link down below but take

a look at this here's a credit suisse

suggestion of potentially dangerous

stocks because they have what they

consider elevated margins and i took the

liberty of highlighting a few here

though of course you can pause and

screenshot this yourself you've got

airbnb costco dominoes pinterest spotify

and whirlpool if you even got teledoc in

there and what i thought was interesting

about this was a lot of these were

actually companies that did

substantially well during the pandemic

these are almost considered stay-at-home

place right or get away from hotel place

then they mentioned that they here are

some stocks with margins below their

norm and companies with margins below

their norm they recommended as

carnival cruise lines

cvs health

disney

norwegian cruise lines

and royal caribbean now i thought this

was quite interesting because i'm a big

fan of taking advantage of even if we

have pain for the next year taking

advantage of the fact that hey

if the market

wants to do this crazy bottoming process

and let's say we're here and maybe we do

have an additional

15 to 20 percent to decline which may or

may not be true credit suisse believes

this but that doesn't mean that they're

going to be right

in this case i'd rather be spending as

much money as i can in this area here

buying high quality companies that i

believe are going to survive the

earnings recession and this is why we've

created a new m1 finance pie that we're

sharing with course members and we're

going to talk about a lot this upcoming

week with course members about why

certain choices are in that pie and why

others aren't it's a diversified basket

of about 20 different stocks we even got

an index in there which we'll reveal in

the future which index that is with that

said thank you so much for watching this

video consider sharing it if you found

it helpful consider subscribing what do

you think about what credit suisse says

when and how much further do we have to

go to bottom

and

have a great weekend