What to invest in when the economy collapses?

ADVERTISEMENT // As Managing Director of Itzehoer Aktien Club (IAC), Jörg Wiechmann explains in his current stock column sh: z why stock prices are ahead of the real economic crisis.

This is what Jörg Wiechmann writes about going public in times of crisis:

Looking at the economic outlook is not for the faint of heart these days: Jamie Dimon, head of America’s largest bank, sees a “hurricane” rushing towards the global economy. Elon Musk, Tesla’s boss and richest person in the world, has a “super bad feeling.” Even professional optimists such as Economy Minister Robert Habeck and Finance Minister Christian Lindner point to a tone rarely heard before by government politicians: Habeck warns of a “Lehman moment” for the German gas market – with the inevitable collapse of German industry. Lindner is cursing the population for the worst recession since World War II, including even “five years of scarcity.”

Anyone who does not inevitably have the reflex to run away as an investor must have nerves of steel. But first, panic in the stock market is a bad guide. Second, the question would arise: where to run? With zero or penalty interest and 8% inflation in mind, parking your money in your Call Money account only brings you one thing: guaranteed impairment. And if everything really goes as bad as forecast, the question becomes, how safe is money in the bank?

But with the outlook for the economy so terrifying, can you seriously consider investing your money in stocks in this very declining economy? We think so. And not because we wouldn’t take horror forecasts seriously – quite the contrary. However, the economy and the stock market do not go hand in hand. Rather, the stock market as the leading indicator of the economy is rushing forward. Simply because investors are already considering all the known information – including the bleak economic outlook – in their investment decisions.

It is expressed as follows: Many companies still record record profits. Profit distribution has also recently reached new record highs worldwide. On the other hand, prices do not reflect this positive present, but already have a poor outlook for the future: Measured against the MSCI World index, stocks are already down more than 20%. This makes the first half of 2022 one of the five worst years since the Great Depression of 1930 – despite the current record profits of companies. The stock market has once again served its purpose as a leading indicator and is now offering entry prices at crisis level – even if the real economic crisis is yet to come.

Have we hit the bottom of the stock exchange? It depends on how your future prospects unfold. If the situation worsens than Dimon and Musk had expected and if Habeck and Lindner’s horror forecasts turn out to be on the low side, the stock market will price in this deterioration and fall again. On the other hand, if the horror expectations for the economy were right, an expectation that has already been priced would just come true – without any impact on prices. If, on the other hand, it turns out to be less than forecasted, the stock market would price the improvement in moods and rise.

Nobody can guess exactly what the coming months will bring us – even worse, better or as badly functioning economy as expected. The only thing that is certain is that the current stock market pessimism has already been priced in and will bring entry prices down significantly. And that after each crisis there is a revival that drives the stock market to new heights. Regularly skipping a timely entry turns out to be the greatest risk in retrospect.

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