Investing Legend Sees a Second Great Depression for Stocks by 2023

The comments below are an edited and abridged synopsis of an article by Tyler Durden

Kiril Sokoloff, author of the ‘What I Learned This Week’ newsletter, was recently interviewed by Rana Foroohar for the Financial Times, and sets out what he believes lies ahead.

Investing Legend Sees a Second Great Depression for Stocks by 2023 | BullionBuzz
Poor old men sitting in abandoned house

Sokoloff provides a chart that compares the Dow Jones between 1918 and 1932 to the current period. It shows that the rise and the fall are similar to the period from 2009 onwards.

If history is a guide, stocks have further to go before they hit bottom. Then, as now, “central bankers were pushing on a string,” trying in vain to whip up a real economic recovery with monetary policy.

Here is how Sokoloff, who has traditionally been upbeat, optimistic and generally bullish, justifies his outlook:

“The more debt you add [via monetary and even some fiscal policy], the more unproductive the debt becomes,” says Sokoloff. It’s not a popular view these days. Austerity is out, and MMT—the notion that a country that controls its own currency can print it freely to fund deficit spending without worry—is in. But Sokoloff believes the stimulus programs being launched in the US, Europe and many other parts of the world will likely end in tears.

“I think we’re at the beginning of a long-term period of deflation, falling prices and the loss of pricing power. The only way out of it will be to have a long period of austerity, and to get the US savings rate up dramatically.” He cites the period during WWII, when federal budget deficits were high, well over 20% of GDP in some years, but the personal savings rates of Americans were as high as 25%, including income gains from the war and net exports, as opposed to 8% or so before the Covid-19 crisis.

There is some good news: After its plunge to all-time lows, the Dow traded in a tight range for several years before eventually blasting off to unprecedented highs—triggered by World War II.

Any comparisons to the Great Depression era should also consider the cataclysmic event that ended it, and look forward to a similar outcome over the next few years.

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