Will the Stock Market Crash in 2023? Uncover the RED FLAGS!

Welcome to another episode of We're Talking Money. I'm Dustin Hocken, and we have a great show for you today. We're joined by the one, the only Phil Clark, president and CEO of OmniStar Financial Group. For those of you that don't know, Phil has been in the industry for about 30 years, and he started OmniStar back in 2002. Phil, thanks for joining us.

My pleasure, looking forward to it.

If you follow our channel, you'll know that Phil's been putting out some amazing videos over the last two, three months or so, so I thought it'd be a great idea just to pick his brain with some of the most pressing topics in the world today. Stay tuned. Before I begin, please subscribe to our YouTube channel. It really helps us grow our reach, and it really helps you stay better informed, because we're coming out with relevant and interesting videos every week. Phil, I appreciate your time. Thanks for being here. Let's dive right in.

Let's do it.

So certainly, OmniStar being money managers, we spend a lot of time looking at the economy, looking at charts, and I know you spend a lot of time doing that specifically. I would love to hear what you're seeing in these charts for 2023.

Yeah, it's a good question. The charts have been pretty unusual this year, really for the last year. We've seen a lot of fits and starts, but the thing that I'm probably watching more than any right now, Dustin, is breadth in the market. Breadth in the market is how many stocks are actually participating in these rallies. And we tend to look at a 20-day, a 50-day and a 200 day, and say the S&P 500, for example, there's 500 stocks. Well, how many of those stocks are really driving the rally and how many are not?

And so right now, 20, 30 percent of all S&P 500 stocks are well under those moving averages that I talked about. In fact, there's only a handful that are well above those moving averages, and actually those few stocks, they're driving all the performance of the S&P right now.

Wow, that's concerning.

When you don't have breadth, you can't move a market. It's temporary, is my point.

And so normally, when you look at the charts and you look at the breadth, is it more everyone's moving together, as opposed to maybe 20 percent pulling the entire market? Or how does it usually look?

No, you're exactly right. So if the market is moving in sync, so if all the stocks are participating, that means that you have buyers across all of them. But when you have buyers across a few, the rest are being pulled along, because those few at the top, they're doing all the heavy lifting. That's not an efficient market, and that probably doesn't keep a market moving in the direction of up. It probably means it's going to come backwards a little bit, and maybe sooner rather than later.

Now, that's very interesting, and you're really digging deep to try to figure out all the statistics. And so what I would love to hear is, what are some of the big red flags that you're seeing for 2023?

I think we just saw them. A banking crisis, that was enough. And if you think about, Dustin, I think people don't necessarily want to get into the numbers as much as maybe others do. I tend to love it. Here is something that no one's really talking about. We held interest rates at zero for 14 years, and then all of a sudden, in less than 12 months, the Federal Reserve moved them 500 basis points. So we went from zero to five percent. Our economy was living on zero interest rates, zero percent interest rates. All of a sudden that's changed, and so now you see these banks collapsing.

That in itself shows you there's stress in the system. The thing that shows you that there's stress in the system even more than that is when our rule makers start to change the rules to save the banks. Something about that doesn't feel right to me. I don't have the proof, but you don't change your rules in an instant because of something you did in the previous year. But they are trying to save something, and I think it's because they know there's more under the surface, and the rest of us haven't learned that just yet, but we will.

Talk a little about the rules that they changed. What are those rules?

Well, the simplest one is they backstopped everyone. FDIC is 250 000. No one in Silicon Valley Bank, none of these banks, did anyone lose any money. That's a huge problem, because what that means is, if any other banks go down, who's going to save those investors? Or are those investors not going to be saved? So they're setting precedence here that may or may not be sustainable if all of a sudden we have greater deficiencies in the financial markets. There could be a major, major meltdown. Those are real problems, and those are things that have been induced by our Federal Reserve, by our government. Yet when times get really, really tough, they come in and start the rescue plan.

Well, we've been doing that since 2008, really 2009. Everyone's used to a rescue package. But keep in mind, a government is only as strong as its taxpayers. So if the taxpayers can't afford it, the government can't keep bailing people out. That means more debt. More debt means more of a potential crisis.

Anytime you have to change the rules, things probably happen that you weren't quite sure that was going to happen, and you're probably scrambling to figure something out. And so with that being said, what concerns you most about the markets in the next, say, six to 12 months?

A lot. To ask me what concerns me about the markets, it'd be hard for us to do that in one show, but I'll tell you a couple of things. One, we've got a global issue here. This isn't just the U.S. So if you look at last year, in 2022, we saw something, Dustin, that's never happened. We saw commodity prices rise, we saw the U.S. dollar rise, and we saw all of that happening while interest rates were rising. Those things absolutely don't go together, and that's never happened. In a commodity driven economy, your dollar should not be growing. It should not be strengthening in the face of such inflation. Inflation, remember, went from one to two percent to 9.1 percent almost like overnight. And so to have your dollar increasing in value in the face of that... What is inflation? And inflation is the weakening of the dollar. It's the dollar's inability to purchase goods and services.

So we saw some things last year that are unprecedented. Those are, to me, writing on the wall that says this isn't just the U.S. We have a lot of things going on globally. So banking systems, the economics around the world, are, I think, going through some serious, serious pains right now. And one other thing to keep in mind, if you consider how much of currency around the world is denominated in U.S. dollars, think about credit. With our dollar rising last year, that, in my opinion, is an almost immediate signal that global credit was contracting. And so if that is the case, there's a lot more here that will begin to come maybe a little clearer as we get through this year. But I think it's going to be a tough year.

So what about when we watch CNBC? They're talking about how unemployment is low, consumer spending is high, GDP is hanging in there, and they almost act like we've already been through the worst of it.

Yeah, well, they're paid to get viewers. They're paid to do a lot of things. And so they can say GDP is hanging in there, but let's be honest, GDP has been on the floor since 2010.

we haven't seen major growth in our GDP. We stay in the one two handle. China, and it's not even Heyday, was it six and seven? And so if we're thinking that one in two is something to write home about, I'm sorry to report that is, it's not even remotely close to what I call growth, not for this kind of economy.

So jobs are super, or rather unemployment, at all-time lows. These are historical numbers in the what, 3.4 range? Well, that looks good on paper, but why is that? Why is it that we have such low unemployment? Well, if you think about it, our government has piped more money into our system, trillions of dollars. Give me five or six trillion dollars, I can make any business look good for a while. So with that kind of money going into the system, people had money to spend. Corporations are laden, they are just overflowing with extra money. They've hired people that they don't need. Well, now we're starting to see those layoffs, and eventually, Dustin, those numbers will rise. That's part of the Fed's, that was part of their game plan, is to move unemployment up in order to get inflation where they want it. You almost, you must get unemployment to come up.

I think about the severance packages that people received as well, whether it was three months, six months, nine months. The number looks low right now, but once people stop getting that money from the severance package, then they have to go file for unemployment, and then they're going to show up on the stats.

So that's such a great point, because unemployment doesn't change until someone signs on for their unemployment benefits. That's a great point. And to our listeners, that's a lot of why you don't see the 3.4 number moving markedly, because of what you just said. You're spot on, that's exactly right.

So certainly we're bearish on the market for 2023, so curious to know, and I think our listeners would love to hear this, what does OmniStar doing specifically in our portfolios to prepare?

So as you well know, we've hedged a lot. There's a lot more gold, there's a lot more silver, a lot more metal than, if you will, commodities in our portfolios. A lot more cash, more cash than we've held since 2010. And we also are carrying a lot of short end maturities, or short maturity, so buying the short end of the yield curve, so two year, three year, four year paper at the most.

But I will say that over the course of the next few months we will probably start buying the longer end of the curve. And of course when I say that, everybody says, whoa, what are you talking about? Why would you do that when the long end of the curve is lower? But Dustin, if our thesis is right and the global economy continues to shut down because of its, that the fractiousness is going on, not to mention we think that corporate earnings are going to be down first quarter, which we're going to get to see some of that real soon, second quarter is probably going to be even worse. Those things are likely going to, they're going to tell us a big, big story.

But I think what people can be doing, much like what we've done: metals are a great hedge, treasury yields, then think about the long end of the curve. And the reason for that, if we go through a major recession, if we see a global, or an economic slowdown that is globally affecting, the long end of the curve is going to suddenly look really, really good, because the Federal Reserve will be forced to start lowering interest rates. And it will not be because they just want to reignite the economy because finally they got inflation down. It is going to be because of a much, much bigger problem. If that happens, that long end of the yield curve giving you five or ten years worth of good interest rates, as all of a sudden that's going to feel really good.

I remember us talking about this a couple years ago, before all of it really hit the fan, so to speak, and we kept saying the Fed has a very difficult job. So they're trying to thread the needle, or find the needle in the haystack, so to speak. They have such a difficult job because they need to predict what the economy is going to look like with current interest rates. And at this point we were talking about it, they were still low, and so we knew they needed to raise them up to slow things down, because inflation was starting to get out of control. And now it's getting to the point where, okay, uh-oh, we've actually maybe done too much, because it wasn't reacting quick enough, and now sudden may have to start reversing that.

To your point, what you just described is almost stagflation. So here's the Fed, and Dustin, man, you're right, I would not take their job for anything. What a difficult position to be in. On the one hand, I feel sorry for them, because man, it is thankless and it's difficult. On the other hand, they painted themselves in this corner. Absolutely none of us did it. This is all the Fed trying to make sure back in 2010 that we didn't have to go through any pain, and unfortunately pain is inevitable when you're going through business cycles or economic cycles.

So I think that when you consider a few years ago, some of our conversations, all one has to do is look at, first, zero percent on the interest rate. Unprecedented, we've never done that. Then you saw the rest of the globe do it, all to try to excite growth. Well, that tells you something right there. And then printing money on top of zero rates, that makes no sense. You knew that's a ticking time bomb. It's just how long was the clock going to last. And I think it's now coming home to roost.

I think we're going to figure this thing out soon, but I will tell you, I believe it's out of the Fed's control at this point, and I say that with great respect to the Fed, but I don't think they can fix this. When you look at our GDP, you look at our debt, and our debt is rising, we're at 130, 135 percent of our GDP. That is essentially, that's begging for a cataclysmic event that's going to be hard for them to get out of. I don't know where we will be in a year, but I can sure tell you I don't think we're going to be in a burgeoning position like we were a few years ago.

And we should have never started raising rates, or we should have raised them a long time ago, and we should be finishing them last year and starting to lower them now to regenerate the economy. We just acted a little bit too slowly, and I think it was because the Fed's doing their best to thread that needle that you talked about, and then it's going to be hard to know exactly what happens. No one has a crystal ball, but the signs don't look great.

And so he talks about what we're doing in our portfolio, so I want to hit on one strategy. So commodities and gold and silver, talk to me why that works. Why is that a good strategy in what we're projecting moving forward?

Well, in simple terms, gold is a hedge. And what I mean by that is gold in itself is a currency. You can't take it away, it can't be debased. Gold is always gold, and it will always be worth something. When you hold gold, it doesn't pay any dividends, doesn't do anything for you as far as income is concerned. But what it will do, when currencies are being harmed, they're going down, when all things fail, gold tends to rise in cost. And so it truly is a hedge. When some things are going down, gold will typically go up. Commodities run like that typically, in opposite motion of, say, typical stocks.

So I think it's good to have some hedge. I think it's really good to have cash right now, because I do believe people that allocate properly, that hold some cash, there will be, and I say this with great confidence, there will be opportunities to buy stocks at a reduced price. People say, oh, we found our bottom at 3 600 last year. Maybe, I hope that's true. I would love to be wrong on this, but I will not be surprised if we see further downside well below 3 600 on the S&P 500. There's a lot of things at play here, Dustin. Probably the most complicated economy I've ever seen in 30 years.

So I heard you say something interesting. You said opportunity. One of the biggest opportunities right now is to hold cash. Do you think that for the average American that's the biggest opportunity right now?

There's an old saying, cash is king. And if we go through a recession, or even stagflation, at the levels that we feel are imminent, cash is something that you need. If markets are coming down and your money's invested in that market and you are an average person, you're going to need to get to your money. You don't want to have to sell securities when they're down, because you've just aggravated the problem and you've exacerbated what was already bad. Now you've made it worse. So holding some cash, emergency reserve accounts is the way we generally refer to that.

So if a person doesn't have emergency reserves, I would encourage all of the listeners, if you don't have emergency reserves, get some. Start thinking about what can you put away, what should you have on the sidelines, three, six, nine months of spending. Don't put everything in the market right now. Some people think now is the time to buy because assets are cheap. I don't believe that for a minute. If I did, I don't believe we'd be seeing what we're seeing, nor would we have seen what we saw last year. There's just a lot to unfold here.

People get anxious, though, Dustin. You know this, investing is like a roller coaster, and people tend to get euphoric and they follow the crowd. So as things are, right, going up, even though it's a bear market rally, man, they want to jump on, and they start jumping in because they don't have the patience to wait, or because they think the crowd must know what the heck they're doing. And sometimes one of the most painful things of money management is having to put those patience out there and wait and not let your emotions jump in. You have to look at the fundamentals, look at the technicals, and then stick to your game plan. If you don't have someone that can help you with that, they need to be reaching out to people like us, or somebody that can help them assess and build a strategy that makes sense for them.

I think you're right. I think a big opportunity is holding cash. We just came out, the video that was just released, about what to do with your cash. We have so many clients right now who are feeling what we're feeling, a probably not the best time to invest money, but hey, I've got all this money, what should I do with it? I don't want to just sit there earning nothing. There's a link in the description if you're interested in watching that video. Again, it's four ways to deploy cash in 2023.

Do you feel like financial planning in general is becoming more important than it used to be?

I think wealth management, or financial planning, is more important today than ever. First is just simply stepping back, looking at yourself and saying, you know what, I probably need help. I have a complicated situation here, whatever that means, everyone's different. So one is just admitting it. Two, it's then choosing to work with someone who has the confidence, the experience, to help them build a plan that's suited for them.

Well, certainly appreciate your time, Phil. This was great, a lot of great information that I learned. I know our viewers are going to learn a lot, and hopefully they can feel better prepared coming for 2023.

And for all of you out there, I'd say I hope this is helpful, I hope this is good information. If you don't know where to go, the team at OmniStar is here for you, and so please reach out to us. We'd be happy to build you a financial plan, if that's where it goes, or if you just have a simple question and want to bounce an idea off us, we're all here and more than willing.

Please don't forget to subscribe to our YouTube channel. Helps us grow our reach and helps you stay better informed, because again, we're putting out videos every week. You can also follow us on Facebook, Instagram, LinkedIn, and of course our website, www.omnistarfinancial.com. Thanks for watching, and we'll see you next time on We're Talking Money.

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