Scott Galloway predicts US$10 trillion market wipeout
Scott Galloway is an American academic, author, podcast host, and serial entrepreneur. He’s best known as a Clinical Professor of Marketing at the New York University Stern School of Business and a prominent commentator on big tech, modern economics, and social trends.
Galloway has recently and publicly joined the ranks of stock market bears, predicting we’re on the precipice of a US$10 trillion wipeout while immediately noting he, “gets this wrong all the time [so] this is not financial advice.”
Galloways catalyst is not the war in Iran, it’s what comes after – a chain reaction.
Galloway believes oil won’t remain at extreme levels like US$150/bbl, but believes oil is going to stay elevated through the rest of the year, reigniting inflation in some markets. He thinks corporate earnings will be impaired as consumers stop spending once some of them start paying five bucks a gallon for gas and the value of their 401(k)s starts to decline.
He thinks the Q2 earnings season heralds a deterioration in corporate performance. In turn he believes this will influence CEOs to “throw in the kitchen sink and they’ll make it look like a bloodbath just to get all the bad shit out.”
But Galloway also says, “the real contagion here is going to be from emerging markets.”
“I think there’s a decent chance that Pakistan and Egypt default, as well as Sri Lanka and Bangladesh,” adding, these are the countries with “Dollar denominated debt, [are] very energy dependent, [and] very fragile economies.” Galloway believes “there’s this domino effect in those markets because they can’t afford oil imports and their dollar-denominated debt just becomes unpayable.”
And then, he says, the real downward spiral starts. European banks holding that emerging market debt start announcing write-downs. Foreign banks, including Deutsche Bank, and BNP, Paribas, are all hugely exposed.
Next, Galloway predicts, credit spreads blow out, “and we get sort of an 08-style, ‘which bank is next(?)’ moment, except this time it’s happening while the U.S. is fighting a war we started for no reason.”
The Stern School of Business Professor suggests that by August, the narrative shifts from transitory war shock to “we may have broken the global financial system.”
He believes by then the S&P will be “off 20 to 40 per cent from its peak…and quite frankly, the only thing that probably goes up is canned goods and ammunition.”
“The contagion is going to start in emerging markets that can’t afford oil and where their debt is dollar denominated. It’s just a toxic cocktail.”
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
He is also author of best-selling investment guide-book for the stock market, Value.able – how to value the best stocks and buy them for less than they are worth.
Roger appears regularly on television and radio, and in the press, including ABC radio and TV, The Australian and Ausbiz. View upcoming media appearances.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
