Research of inflation and deflation, and the Federal Reserve’s (Fed) discount rate from 1914 to 2022 led to my discovery of four policy mistakes made by the United States’ central bank between 1920 and 1931. These policy mistakes caused and increased the severity of both U.S. Great Depressions, and created the 1929 stock market bubble. Because the Fed repeated its prior mistakes in 2020 and 2021, the stage has been set for the 3rd U.S. Great Depression to soon begin.

In addition, my projected 79.95% decline for the S&P 500 further supports a U.S. economic depression. One of the root causes of a recession transforming into a depression is a significant stock market decline.  The chart below depicts the last time the S&P 500 declined by as much as 79.95% from a peak to a trough.  For the September 1929 to June 1932 period, which occurred amidst the 2nd U.S. 1929−1938 Great Depression, the S&P 500 declined by 85%.

PLEASE NOTE: This forecasted decline of “79.95%” is based on the S&P 500’s “real” dividend yield, which changes monthly when the Consumer Price Index (CPI) is updated. The table below contains the S&P 500’s data for the first four months of 2022. The data reflects that when negative dividend yields increase the projected target for the index becomes lower. See “Inflation to Shoulder Blame for 79.95% S&P 500 Decline”, _05/__/2022. See also, “generational investor article”. Both articles are available at AlphaTack.com.

AlphaTack.com was founded to educate investors about secular bear markets and the defensive strategies to follow during steadily declining and volatile stock market conditions. AlphaTack.com’s slogan is “Growing Assets Against the Wind”.

The table below contains the S&P 500’s current month and prior three month’s price targets. Targets for S&P to decline by 78.10% to 79.95% are based on the index’s real negative dividend yields for the respective months. AlphaTack.com adjusts targets monthly to reflect the published Consumer Price Index (CPI) utilized to calculate the S&P’s real dividend yield.

(To receive FREE S&P 500 Target Updates Monthly, enter your email below.)

For more about the accuracy of the S&P 500’s dividend yield status changes, which predicted the index’s major highs and lows from 1871–2018, please read my ___[date]____ article entitled “_____________________”. Investment strategies during volatile markets and economic contractions are detailed at the bottom of this article, or go to AlphTack.com.

The Fed’s Four Discount Rate Policy Mistakes

Mistake 1: Rate hikes transform recession into 1st Great Depression (1920-1921)

Mistake 2: 1926−1928 Rate hikes created 1929 stock market bubble and depressed home prices

Mistake 3: August and September 1929 rate hikes guaranteed a depression

Mistake 4: 1931 to 1933 deflationary rate hikes extend the duration of the 2nd Great Depression (1929 to 1938)

The Fed was established by U.S. President Woodrow Wilson in December 1913 to primarily tame the extremely volatile Consumer Price Index (CPI). The chart below depicts the periods of inflation (gold bands) which were followed by periods of deflation (pink bands from 1881-1913. This 32 years was the most volatile period for the U.S. Consumer Price Index (CPI). Gold bands in the chart below represent periods of inflation and pink bands represent periods of deflation. The minimum and maximum inflation for the periods ranged from 6.3% to 23.7%. Minimum and maximum deflation ranged from 6.5% to 15.85% for the periods of deflation which followed the periods of inflation.

The chart below includes the S&P 500 monthly from 1881 to 1913. The index’s average gain per annum for the 32 years was 0.70%

The table below depicts inflation’s peaks prior to the establishment of the Federal Reserve, and evidences a minimum of 10 consecutive months of inflation from 1872 to 1911. A great 15-month example of pre-Fed CPI volatility is highlighted in the table from June of 1882 to August of 1883. Inflation peaked at 11.0% and was followed by deflation peaking at –11.71%.

The chart below depicts U.S. recessions from 1871 to 1913. Volatility of the U.S. CPI from its inception in 1871 wreaked havoc on the U.S. economy during the late 19th and early 20th centuries.

Since its inception in 1914 the Fed’s favorite inflation-fighting weapon has been to raise its discount rate to induce a recession. The chart below depicts the Fed’s discount rates and recessions (depicted by grey shaded areas). The Fed’s discount-rate increases implemented for the purpose of inducing recessions from 1914 to 1952 are represented in the chart below (depicted by the purple dots). Between 1914 and 1952 only two recessions were not induced by the Federal Reserve (depicted by brown dots in the chart).

The chart below depicts that Fed discount rate hikes preceded all of the U.S. recessions (grey shaded areas) from 1950 to 2022.

In the 1914–1952 chart below, the red areas above the axis depict the periods of inflation, which the Fed fought by raising its discount rate to induce recessions.

Mistake 1: Rate hikes transform recession into 1st Great Depression (1920–1921)

From 1916 to 1919, inflation had remained at a double-digit pace. With inflation at 13.13% in October 1919, the Fed raised the discount rate to its highest level since 1915. The strategy was successful. Inflation, after peaking at 23.67% in June of 1920, quickly reversed to a –15.79% and deflation by June 1921.

However, there were consequences. The chart below depicts that the FED had continued to increase the discount rate after the recession had begun.

The central bank then steadily raised its discount rate to a peak of 7.0% by June 1920.

The chart below depicts that the recession transformed into the first-ever Great Depression. The depression, which began in January 1920 and ended in July 1921, is depicted by the grey (recession) and brown (depression) shaded areas.

Even though the Great Depression of 1920–1921 was much shorter than the 1929 to 1938 Great Depression that followed, the decline for the U.S. economy was much steeper. The chart below depicts the 33% decline for U.S. Industrial Production during the 1920–1921 Great Depression.

The chart below depicts the S&P 500’s 32% decline from its pre-Great Depression high to its July 1921 Great Depression low.

Before revered U.S. economist, Milton Friedman’s death, he blamed the Fed for causing the 1st Great Depression from 1920 to 1921 because they continued to raise the discount rate after the 1920 recession had begun. He also blamed the Fed for extending the duration of the 2nd 1929 to 1938 Great Depression.

Mistake 2: 1926−1928 Rate hikes created 1929 stock market bubble and depressed home prices

An extended period of inflation ended in June 1926 and was followed by 35 consecutive months of either zero inflation or deflation, which ended in June 1929. Instead of lowering its discount rate to fight deflation the Federal Reserve made its second mistake by steadily raising the discount rate from 3.5% in June 1926 to 5.0% in 1928. The increase in the discount rate resulted in the S&P 500 increasing by 80% from 1926 to 1929. However, the U.S. home price index declined by 12.1% from 1926 through 1929, as depicted in the chart below. The Federal Reserve’s fourth mistake (covered below), caused the home index to continue to decline until 1933. From 1925 to 1933, the index declined by 30.5%.

PLEASE NOTE: Deflation’s impact on nominal dividend and bond yields is exactly opposite than inflation. To calculate a real (adjusted for CPI) yield, when there is deflation the rate of deflation is added to the nominal yield. To calculate a real (adjusted for CPI) yield, when there is inflation the rate of deflation is subtracted from the nominal yield. Assuming the nominal yield is 5% and inflation rate is 3% the real yield is 2%. If the deflation rate were also 2% the real yield is 7%. The chart below depicts the S&P 500, its real and nominal dividend yields and the CPI (inflation & deflation) from July 1926 to June 1929. The S&P 500’s historic real dividend yield high was why the index increased by 80% from 1926 to 1929.

Mortgages were unaffordable from 1926 to 1929 because the real yields for U.S. Treasury bonds and the S&P 500 Dividend were near all-time highs. The above chart depicts that the S&P 500’s real (inflation-adjusted) dividend yield reached as high as 8.4% in April 1927, which compared to its nominal yield of 5.04%. The red bars also depict the deflation for the period. The much higher real vs. nominal yield during the noninflationary period motivated the public to not spend or buy homes and to instead buy dividend paying stocks and U.S.Treasury bonds from 1926 to 1929. This is the reason the S&P 500 went to a bubble high in 1929. The high real yields motivated the public to avoid investing in real estate and other real assets.

PLEASE NOTE: The Home Price Index’s steady decline which was caused by the Federal Reserve’s discount rate being too high from 1920 to 1933, resulted in the U.S. public: 1) lacking confidence in the economy and, 2) excessively over speculating in the stock market.  The Fed was myopic in 1928 and 1929. It did not consider to lower the discount rate to inflate the economy since it was preoccupied by an overheated stock market. See, “Warning Signs Investors Ignored Before the 1929 Stock Market Crash” – HISTORYWhat the Fed should have known was that raising a discount rate in a deflationary environment was THE catalyst to overheat both the bond and the stock markets. The hikes resulted in U.S. Treasury and S&P 500 dividend yields being near their all-time highs during the period. Hence, the Federal Reserve’s discount rate policy extended the 2nd US Great Depression.

The chart below depicts that the AlphaTack PE multiple (AT/PE) almost tripled from 12.03 in 1926 to 32.66 in 1929. It fully supports the S&P 500 being extremely overvalued in 1929.

More about AlphaTack’s proprietary AT/PE, the only multiple which adjusts for CPI (inflation & deflation) is available at AlphaTack.com.

The Fed should have been steadily lowering its discount rate during the extended noninflationary period. Lower discount rates would have resulted in the U.S. economy inflating, which would have reduced the fervor and prices for U.S. stocks. By raising instead of lowering the discount rate, the Fed “threw gasoline on a fire” that was already roaring because inflation was non-existent. The Fed’s mistake resulted in the S&P 500 climbing to a bubble high in September 1929. Because the Fed did not lower the discount rate between 1926 and 1929 to inflate the U.S. economy, it was perhaps the biggest contributor to the “Roaring 20s”, which ended with a stock market crash and the 2nd U.S. Great Depression.

Mistake 3: August and September 1929 rate hikes guaranteed a severe contraction of the U.S. economy

The Fed’s third mistake, August and September 1929 rate hikes — when combined with its second mistake — was the root cause of the nine-year (1929–1938) contraction of the U.S. economy that infamously became known as “The Great Depression”. The Fed became hyper-sensitive after the 1st Great Depression debacle (1920–1921) and adopted a very defensive strategy to fight inflation. This included the Fed acquiring a hairtrigger policy to implement discount rate hikes. Whenever a new bout of inflation occurred, which is what happened in July 1929 when the Fed fired before asking questions.

The yellow circle in the chart below depicts inflation rearing its ugly head for the first time since June 1926 when it increased from 0% to 1.17% in July 1929. The red circle depicts the Fed’s raising of its discount rate from 5.0% to 6.0% by September 1929. The second September 1929 rate hike coincided with the S&P 500’s September 1929, all-time high.

Worse, the Fed raised its discount rate at the exact point in time when it should not have. The fragile U.S. economy was still in the process of recovery from the horrible post deflationary period caused by the 1st Great Depression.

The brown shaded area in the chart below depicts the 2nd Great Depression, which began in August 1929 and ended in June 1938. The red area near the middle of the chart and below its axis depicts the extended deflation period which plagued the 2nd U.S. Great Depression.

Mistake 4: 1931 to 1933 deflationary rate hikes (depicted above) extend the duration of the 2nd Great Depression

The nine-year 2nd Great Depression was much longer than the 19-month 1st Great Depression of 1920 to 1921. The Federal Reserve’s irrational discount rate-raising policy was the cause.

The light blue bars in the chart below depict that the Fed was proactive in quickly lowering its discount rate after the October 1929 stock market crash. The Fed steadily lowered its discount rate from 6% in October of 1929 to 1.5%, in June 1931. The central bank, then…abruptly and irrationally raised the rate from 1.5% to 2.76% in October 1931, and to 3.5% in November 1931. The red bars below the chart’s axis depict the U.S. in the midst of a deflationary crisis that began in February of 1930 and did not end until October 1933. CPI for October 1931 was –9.70% and remained in a negative-high single- to double-digit range until June 1933. The S&P 500’s all-time dividend real yield high of 24.9%, depicted by the purple bars was reached in June of 1932. The dividend yield high coincided with the S&P 500’s low for the 20th Century.

Because of the exceptionally long period of high deflation:

    • Consumers saved instead of spending
    • Investors sold their real assets including real estate and precious metals to invest in dividend-paying stocks and bonds
    • Businesses delayed making capital expenditures into the future to obtain lower prices

Instead of raising the discount rate, the Fed should have been lowering the discount rate to 0 or below 0 to motivate consumers and businesses to spend instead of saving.

PLEASE NOTE: Deflation is the worst of the CPI’s two inflation/deflation evils. It reduces and delays both consumer spending and business capital expenditures, which negatively impact GDP. The chart below depicts that capital spending, consumption, and GDP in 1931 subsequently declined to their lows in 1932 and 1933. All three did not exceed their 1929 highs until 1937. 

Upon deflation becoming embedded into an economy, purchase decisions are pushed into the future. Deflation fosters a “price will be lower in the future” attitude. Deflation by design can only occur during an economic recession or depression. At the peak of a deflationary period, which always coincides with a bottom for an economy and stock market, the value of financial assets — including stocks, bonds and cash — increases. The value of real assets — including real estate and gold — decrease during extended periods of deflation.

The chart below depicts that the decline in consumption and capital expenditures resulted in U.S. GDP not reaching its 1929 high until 1937.

All of the Fed’s four policy mistakes from 1920 to 1933 were ill-timed. These irrational discount rate hikes caused the following:

    • 1st U.S. Great Depression (1920−1921)
    • 1929 stock market bubble
    • Extension and severity of 2nd U.S. Great Depression (1929−1938)
    • U.S. home price index to decline by 12.6% from 1920-1938, which encompassed the 1st and 2nd U.S. Great Depressions.

The Fed did not learn from mistakes made between 1920 and 1933. Instead, it repeated them in 2020 and 2021. Thus, the stage has been set for the 3rd U.S. Great Depression.

Fed 2020 Policy Mistake

— The Fed Not Beginning to Raise Its Discount Rate by the End of 2020 —

After the S&P 500’s March 2020 crash the Federal Reserve lowered the discount rate from 2.25% to 0.25%. By the end of 2020 there was no rational for the Fed to maintain the 0.25% rate. The S&P 500 had completely recovered. The index had reached a new all-time high by August 2020 and its gain for 2020 was 16.26%. In December of 2020 the economy was well positioned to recover as a result of the second round of economic stimulus checks to citizens and businesses, and the availability of the first vaccine.

If the Federal Reserve had begun raising the discount rate in late 2020 it would have resulted in the S&P 500 trading relatively lower than the levels it traded at in 2021. A lower S&P 500 would have increased its dividend yield, which in turn might have resulted in the yield remaining positive instead of becoming negative in February 2021. A steady increase in the discount rate in 2021 would have led to real estate prices also being relatively lower. This would have cooled consumer spending which would have reduced the risk of severe inflation. Steadily rising housing prices ― to all-time highs ― is among the key factors for inflation becoming entrenched.

PLEASE NOTE: The 2020 policy mistake of maintaining a historically low discount rate resulted in the Fed Jeopardizing the U.S. economy should a recession or other extraneous U.S. or global economic events occur. By maintaining an abnormally low 0.25% discount rate from March 2020 to February 2022, the Fed put itself in the position of being unable to sufficiently lower the discount rate to stimulate the U.S. economy. In a May 2022 interview, Federal Reserve Chairman, Jay Powell, admitted the mistake. SeeFed chair says interest rates should have gone up soonerWashington Post, May 12, 2022.

Fed 2021 Policy Mistake

— Not Raising Its Discount Rate in April of 2021, When Inflation Reached Its Highest Level Since October 2008 —

This policy mistake caused the S&P 500 to increase by an additional 21.2% from April 2021 to the S&P 500’s January 4, 2022 all-time high. The 2021 S&P annual gain was 26.89%, the 3rd highest annual gain since 1997. There were more historic all-time highs in 2021 than the entire decades of the 1970s and the 2000s combined. See “2021 Was One of the Best Years in Stock Market History” Awealthofcommonsense.com, January 2, 2022.

PLEASE NOTE: This second policy mistake made the U.S. economy extremely vulnerable to a recession, which could easily transform into a great depression. The mistake enabled the S&P 500’s AT/PE multiple to reach 51.88 at December 31, 2021. The high multiple increased the probability of extreme volatility for the S&P 500 and especially for the index to experience a spectacular decline. Such a headline decline could easily cause a recession to be followed by a reduction in consumer and capital spending, the two root causes for an economic depression.

AND…

PLEASE NOTE: From my analysis of the history of the Fed and its attempts to manipulate the U.S. economy by irrational discount rate hikes, I fully understand why the most-revered U.S. economist, Milton Friedman, lambasted the central bank. From its inception in 1913 to the present day, the Fed has been clueless regarding simple economics. The 2021 “transitory inflation” warnings of current Fed Chairman, Jay Powell, were laughable. Any rational person would conclude that $5 trillion ― equivalent to 20% of a government’s GDP ― given to its citizens would de-incentivize them to work and incentivize them to increase their spending. The only logical conclusion would be a subsequent bout of high- and difficult-to-eradicate inflation.

Common Denominators Shared by 2022, 1920 and 1929

    • 1920 & 2022: During both periods the Fed was hesitant hike rates, and waited until inflation rapidly accelerated before taking action. Similar to what occurred in 1920, because the econmony is slowing the Fed has been left with no alternative but to hike rates. (US GDP declined by 1.4% for Q1 2022.) In April of 2021, when inflation was 4.1% vs. 1.36% in December 2020, the Fed should have begun incrementally raising its discount rate. When in 2022 the Fed had its first discount rate hike since 2020, inflation had already reached 7.48%. As a result of the Fed’s tardy response, the U.S. central bank now has no choice but to raise its discount rate much higher and much faster than it has “advertised”. The shock from the unanticipated rate hike acceleration will cause the S&P 500 to initially decline by 41.9% from its 2022 high, to 2799.61. My forecast is based on the S&P 500 reaching an interim bottom at an AT/PE (AlphaTack PE multiple) of 13.4, which is the index’s average AT/PE at its extreme lows dating back to 1921. Even a 35% plus decline would be the impetus for a worsening economic contraction to become the 3rd U.S. Great Depression. For in depth research covering this interim decline forecast please see “Due to Inflation’s effect on PE, S&P 500 to Decline by at least 41.9%”, Michael Markowski, March 20, 2022.
    • 1929 & 2022: The Fed’s abnormally-low discount rate policy led to the S&P 500’s valuation metrics at its 2022 peak being at or near their all-time highs. The bubble high in 1929, also induced by the Fed, made it impossible for the S&P 500 to quickly recoup most of its losses, as it had in 1922. After reaching a post-depression low in August 1921, the index was able to climb back to within 10% of its 1919 high by May of 1922. The S&P 500, declined by 45% from October to November of 1929. By May of 1930 the index was only able to climb back to within 23% of its 1929 high before reversing to its June 1932 and Great Depression low.

The table below depicts the S&P 500 at a 22.98 PE multiple after the index reached its high, following the post-1929 crash. The reason the S&P 500 recovered to within 10% of its 1919 high by May 1922 and continued to increase significantly until September 1929 was because its real PE multiple was 4.36 on 05/1922.

The table below depicts the inflation rate, discount rate and the dividend yield for the S&P 500’s 2022 peak, and its two prior infamous peaks in 1929 and 2000. Metrics in the table depict that the S&P 500 peak in 2022 had significant disadvantages versus its 1929 and 2000 peaks. These disadvantages reduce the probability of the S&P 500 to quickly recover to within 10% of the 2022 peak — should a 30% decline occur.

At the 1929 peak:

i) there was no inflation (0.00%);
ii) the dividend yield was positive (2.95%); and
iii) the Fed was well-positioned to lower the discount rate to stimulate the economy (6.0%).

Advantages present at the 2000 peak were:

i) moderate inflation (3.76%); and
ii) a discount rate of 5.34% well-positioned to be lowered by the Fed.

Based on the S&P 500’s metrics at the January 2022 peak, the index is woefully disadvantaged, because:

i) Fed’s discount rate (0.25%) was at a historic low;
ii) increasing inflation (7.48%); and
iii) the S&P 500’s real or inflation-adjusted dividend yield (–4.86%).

3rd U.S. Great Depression

Before an economic depression can begin it must be preceded by a recession, which was the case for both prior U.S. Great Depressions. Recessions can occur naturally. Recessions can also be caused by sudden and significant stock market declines or increases in mortgage rates.

For any recession to transform into a depression, consumer and capital spending must decline substantially. Spikes in unemployment, mortgage rates, and sudden and significant stock market declines are primary drivers of fears that cause consumption and capital expenditures to decline. Because U.S. GDP declined by 1.4% in the first quarter of 2022, the probability has increased for a U.S. recession to begin. (Please see “U.S. GDP Falls 1.4% as Economy Shrinks for First Time Since Early in Pandemic”, Wall Street Journal)

The pre- Great-Depression-conditions in 2022 harbor characteristics of both 1919 and 1929. The Fed in 1919 had no choice but to raise rates significantly and rapidly to fight inflation. The S&P 500 became a bubble high in 1929 because of the Fed’s 1921–1929 discount rate policy-mistakes.

Additionally, the S&P 500’s real dividend yield has been negative since February 2021. This also significantly increases the probability of a 3rd Great U.S. Depression.

My research of the S&P 500’s extended negative dividend yield periods revealed that the index either declined or underperformed relative to its historical performances between 1871 and 2018. The table below depicts that the S&P 500 dividend yield status changing from negative to positive after an extended negative yield period is an excellent indicator to predict a bottom for the S&P 500.

My “___________” article about the S&P 500’s negative yield provides the math supporting why the index will remain in danger of declining by 79.95% from its January 2022 high to 965.82. The calculated low is the point at which the S&P 500’s real dividend yield would become positive. Another of my articles “______________” defines “generational investors” and explains why, since 1871, they have been — and will continue to be — instrumental in establishing all major tops and bottoms for the stock market.

Generational investors, who have more than 100-year investment time horizons, including family offices, Swiss banks, endowments, public pension funds and sovereign wealth funds. The chart below depicts that as of 12/31/2021, the aggregate $69.1 Trillion of generational investor assets were equivalent to 129% of the $53.4 Trillion value of the entire U.S. stock market.

Finally, based on my research of secular markets and PE multiples at their peaks, the S&P 500 secular bull market that began in March 2009 ended at its January 2022 high of 4818.62. (Please see 03/20/2022 “Due to inflation’s effect on PE, S&P 500 to decline by at least 41.9%”) Assuming, the S&P 500’s new secular bear market behaves similarly to its prior secular bears in the table below, the index will decline by 47% to 85%.

Never more salient and urgent than today, the AlphaTack.com slogan
Growing Assets Against the Wind”…
reflects the wisdom inherent in our philosophy.

IN SUMMARY

    • The Federal Reserve has no choice but to aggressively raise its discount rate, which would cool down the U.S. economy to fight inflation.
    • Fed rate hikes to tame inflation will cause a recession. Rate hikes preceded all but two (1938 & 1945) U.S. recessions from 1918 to 2022.
    • The S&P 500 must decline by 79.95% from its 4818.62 high of January 2022, to 965.82, to enable its real (inflation-adjusted) dividend yield to go from negative to positive.
    • The probability is very high that a recession will transform into  depression. An S&P decline of such magnitude is one of three potential underlying events which could cause a recession to transform into a depression. The other two are escalating unemployment and mortgage interest rates.

For a depression to be avoided the S&P must not decline by anything close to 79.95%.

There are three possibilities, or any combination thereof, for the S&P 500 dividend yield to go from negative to positive without the index having to decline by as much as 79.95% — reasons being, if:

1. The S&P would require all 500 of its member companies that have never paid dividends to pay a dividend, including Tesla, Google, Amazon and Meta (formerly Facebook);
2. Inflation declines from 8.3% in April 2022 to 1.3%; and/or if…
3. The Federal Reserve quickly and significantly raises its discount rate to induce a recession, it would result in the following;

a. The S&P 500 descending to 2799.61, a 41.9% decline from its January 4, 2022 high.  The precise lower level is based on the index having a high probability of bottoming at its AlphaTack PE (AT/PE) multiple of 13.4.  The AT/PE multiple of 13.4 is the index’s average of all of its AT/PE’s at its extreme lows from 1921 to 2020.  The proprietary AT/PE is the only PE multiple that adjusts for inflation and can calculate a negative PE. S&P 500 at its lows, based upon the historic AT/PE multiple, would enable buyers to enter the market; and,

b. Inflation declining sharply, and possibly, a bout of deflation that would immediately increase the S&P 500’s real dividend yield to become positive. To date, the S&P 500’s highest real (inflation-adjusted) dividend yield of 24.9% coincided with the June 1932 deflation rate of -9.93%.  For the reasons stocks and bonds perform best during deflationary periods see, “Until Generational Investors Buy, S&P 500 Bottom Not in Sight!”

The Federal Reserve could potentially thread the proverbial needle by inducing a moderate recession.  The moderately lower S&P 500, from its May 10, 2022 low of 3858.87 combined with a sharp decline in inflation, could enable the S&P’s dividend yield to become positive at a much higher level than 965.82.  The positive yield would enable the index to leverage the buying power of the world’s generational investors.  Again, please see the article “Until Generational Investors Buy, S&P 500 Bottom Not in Sight!”

The most desirable of the above alternatives would be for S&P 500 to require all of its member companies to pay a dividend. The least desirable would be for the Federal Reserve to induce a recession. The recession would result in the S&P immediately declining to 2799.61, a 41.9% decline from its January 4, 2022 all-time high of 4818.62. The projected percentage decline coincides with the index’s average PE multiple at extreme historic lows from 1920 to 2022. (Please see my PE article cited above.)

While the first U.S. Great Depression since that of 1929–1938 is highly probable, by acting quickly to induce a recession the Federal Reserve could mitigate the severity and reduce the duration of a 3rd U.S. Great Depression. The only remaining questions are how severe and how long the 3rd U.S. Great Depression will be?

Based upon my research of secular markets, the S&P 500 and the U.S. economy face another risk. The secular bull market, which began in 2009, ended on Janaury 4, 2022. The bull was replaced by a new secular bear. This bear will be the cause of a minimum 47% decline for the S&P 500. The 47% decline is based upon the range of minimum to maximum declines for the S&P 500 for all of its secular bear markets since 1929, which are depicted in the table below. With the new secular bear underway and strengthening, the Federal Reserve needs to act quickly to induce as recession as soon as possible

S&P 500's

The secular bear market’s 47% to 85% decline shown in the table above fully supports AlphaTack’s projections in the table below. The table below depicts a decline of 41.9% to 79.95% for the S&P 500 from the index’s January 2022 all-time and secular bull high.

PLEASE NOTE: AlphaTack’s decline projections of 41.9% to 79.9%. are based on its two S&P 500 proprietary, i.e., AT/PE (price earnings multiple) and Div/Y (dividend yield) inflation-adjusted valuation metrics. AlphaTack’s minimum decline projections assumes that the S&P 500 will bottom at 13.4, which is the average AT/PE at all of the index’s extreme lows from 1921 through 2020. The maximum decline projection is based on the level that the S&P 500 must descend for its dividend yield (Div/Y) to go from negative to positive.

The probability for a substantial draw down of the S&P 500 by end of 2022 is high.

All investors should immediately begin to prepare for the inevitable and extreme U.S. stock market volatility, which is inevitable by doing the following:

    • View 90/10 crash protection strategy video at bottom of page
    • View AlphaTack.com’s secular bear market educational videos at bottom of the page
    • Liquidate all blue-chip shares, mutual funds and Exchange Traded Funds
    • Liquidate commercial real estate

Cash should be invested in any or all of the following:

    • U.S. government 2-year treasury notes*
    • Long/short index hedge funds**
    • Hedge/Venture capital funds**
    • Private technology startup and early-stage companies**
    • Select microcap companies and penny stocks**

*View the 90/10 Crash Protection video at bottom of the page to understand why

**Available through AlphaTack‘s strategies via referral to advisors and funds.

Never more salient and urgent than today, the AlphaTack.com slogan “Growing Assets Against the Wind”… reflects the wisdom inherent in our philosophy.

The chart below depicts the performance of AlphaTack’s Bull & Bear Tracker, which gained 222% vs. 51% for the S&P 500 from March 2018 to April 2022.  The Bull & Bear Tracker is an ideal secular bear market investment vehicle since it fully leverages extreme volatility. The three yellow shaded areas on the chart depict the algo’s gains vs. the S&P 500’s declines for the 2018, 2020, and 2022 volatile periods. For more information about BBT go to www.alphatack.com.