Stocks will drop further, says data expert who called the coronavirus crash Sven Nordenstam Follow Mar 30 · 6 min read

Swedish big data expert Lars Hamberg has made a gloomy prediction.

We are only experiencing a short-lived bounce in stock prices before a prolonged downturn, similar to the one in 1930 after the 1929 crash.

“We are here”, Hamberg says, pointing to this chart:

Hamberg is an avid proponent of so-called alternative data, basically any data that is not part of official data releases.

“The depression that will come may be longer or shorter, deep or more shallow, but it will get a hell of lot worse”, Hamberg, a former banker and fund manager, said of global stock prices in a recent phone interview

“The global economy is getting such a punch in the face that companies will be put out of business permanently, and unemployment will rise,” Hamberg added.

No one can know how markets will develop from here, and the number of pundits is huge, so why listen to Hamberg? For one thing, he called the current downturn, and with uncanny timing at that.

On Feb 17, two days before the S&P 500 reached an all time high, he warned that data indicated an “unprecedented (!) slowdown” in the wake of the coronavirus outbreak in China. In a post on LinkedIn, he questioned the unabated rise in asset prices.

“The markets keep moving up while the key driver of the global economy has lost its drive. It is nuts!” Hamberg wrote. “The markets actually look much worse than in March 2000 or October 2008.” The weeks that followed marked the quickest appearance of a bear market — a drop in stock prices by 20 percent or more — in history.

And he didn’t just guess. His call was supported by alternative data: from the ground in Asia and from models that measure global sentiment based on massive amounts of information on the Internet.

Hamberg was travelling in Asia at the time and speaking to contacts who were racing to find alternative suppliers of parts for industrial products. Supply from China had dried up in the wake of the Coronavirus outbreak. This would lead to similar shortages in western factories in the months to come.

Also, he learnt that Asian hotel occupancy rates had collapsed. Meanwhile, his own sentiment data models showed a sharp spike in “global worry”. Hamberg said he realised that the virus would keep spreading, with Europe next in turn, and that it would dominate financial markets.

Chart posted by Hamberg on LinkedIn on Feb 17

“It was a strong wake-up call to understand that we were facing a pandemic and in effect a global lockdown while the DAX was clocking up an all-time-high like nothing had happened”, Hamberg said.

“Then it’s not hard to understand that if there ever is a moment to sell, it is now.”

Hamberg knows about market crashes. He led the Swedish operations of failed Icelandic bank Glitnir after its collapse in the 2008 financial crisis, which he is credited with having predicted. And as a stock broker at ABN AMRO around the turn of the millennium he was at the front lines of the meteoric rise and subsequent implosion of technology stocks.

In a grim follow-up post on LinkedIn on March 5, he said he had been short stocks and indices since mid-February and that he made money in the 2000 and 2008 market crashes as well.

“Thank you for sharing your extraordinarily insightful remarks Lars, I will never forget (and I am forever grateful as it practically saved my life as a junior private banker back in 2008) how you with great integrity and eery precision called the GFC well in advance. Having said that, I genuinely hope you are wrong this time around”, one LinkedIn user commented.

Hamberg was secretive about the exact nature of the input for the models he is using, but said alternative data has always been around. For instance, investment bankers of times past used to get information from harbour masters about how many ships were docking with this or that cargo, thus getting a heads-up of supply and prices of commodities.

Nowadays, perhaps the strongest way to use alternative data is models that can mine everything that is said on the Internet, Hamberg said. Widely watched macro data releases such as U.S. consumer confidence and jobless claims are outdated, he added.

“It is a bit obsolete to sit around and wait for those figures.”

Firmly dismissing the notion of a “bazooka” of monetary and fiscal policy actions that could stem the fallout from the virus, Hamberg stressed the danger of “consensus trance” for market watchers, a term coined by American psychologist Charles Tart. This is a presumed state of mind where people believe what they are told is true, rather than what they realise to be true.

“Why do people want to believe in a bazooka? Well, because the alternative — to figure up that maybe there isn’t a bazooka that works — is so horrible that it is unthinkable,” he said.

“When reality is just too dreadful we collectively prefer to trade on hopes rather than ordinary logic.”

The global economy, where consumption makes up the vast majority, is just too big, Hamberg said, unless so much new money is printed that hyperinflation follows, which isn’t an option. The loss of cash flow for people as they lose their jobs will be too much to cope with, even for the U.S. central bank, he said.

“Even as the Fed cranks up its balance sheet to over 5 trillion dollars, the idea that it would be able to absorb these losses in flows as well as base is a fantasy — that’s my base case scenario.”

Photo credit: The Swedish Lunch in Davos

Hamberg, a frequent speaker on AI and advanced analytics, doesn’t have a perfect record as a market oracle. In the 1997 Asian financial crisis he lost money in Thai equities, “having totally misjudged how much USD debt some of these Asian companies had”.

“And in the Euro crisis, I bet against Mario Draghi and against the Euro. Draghi sold a comforting illusion, and people bought his Bazooka spiel, or at least pretended to buy it. So, I lost”, he said.

In even starker terms than in previous conversations, Hamberg elaborated on his view of the current state of the global economy and financial markets in an email. The paragraphs that follow are his own words, taken verbatim:

We have a world where some mistakes, from let’s say central banks, can have awful ripple effects over time. What started as The Greenspan Put, some 30 years ago, has grown into a monster. Some investors have totally forgotten that financial risk assets have an element of risk.

Any monkey can make money in a bull market. Still, some investors seem to think that it is normal to collect abnormal returns and cry for help whenever the market corrects. For years, there has been a constant clamour for eternal cheap credit and bail-outs whenever asset prices drop. But this insanity ends now.

The coronavirus happened to be the needle that pricked the biggest asset bubble in history. The pandemic was not a black swan event. Bill Gates has warned us for exactly this scenario and urged world leaders to prepare for it. They didn’t. That’s a conscious choice.

The fallout will be catastrophic for the global economy and for societies. This crisis was a human/humanitarian tragedy just waiting to happen. We should never call this a Black Swan event.

Editing by Kim McLaughlin and Jens Hansegård

Disclaimer: This piece does not constitute investment advice. The writer has no positions in financial markets.