Rethinking My S&P Price Target Under Civilizational Breakdown

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The more I think about, the more inclined I am to think that we are heading for Civilization Breakdown, due to the collapse of the dollar as a medium of exchange, like Germany in the early 1920s, as opposed to my previous base case of a Second Great Depression, like The United States in the 1930s. That’s because of the massive easing coming from the Fed almost daily and the $2 trillion stimulus package coming from the federal government, which may very well be only the first of many. I would now put the odds of Civilizational Breakdown at 63.5% and a Second Great Depression at 36.5%.

However, in the ~2 weeks since I wrote “The Possibility of Civilizational Breakdown” (Wed 3/18/20,, it has become clear to me that an 80%-90% decline in stocks is inconsistent with the hyperinflation I am forecasting.  Currently, we are experiencing deflation in the financial markets and in the real economy, due to the lockdowns. As pointed out to me by poker pro Alec Torelli on a Skype session last Tuesday morning (3/31), while enormous, the $2 trillion stimulus package is likely to simply replace demand from lost income rather than be an inflationary force as long as the country is on lockdown.  The next inkling of inconsistency came when I started to re-read Adam Ferguson’s When Money Dies. In that book, he frequently discusses speculation in the stock market as people sought to put their money in real assets as opposed to the declining Mark, of which stocks, being a claim on a physical business, count. Instead of dropping during the hyperinflation, stocks rose, at least nominally if not in purchasing power due to the decline in the value of the Mark (see pg. 118). Lastly, I read an article an article by Lyn Alden Shwartzer on Seeking Alpha (“Why This Is Unlike The Great Depression”, Seeking Alpha, 3/30: It’s important to note that in that article she is not saying that this won’t be as bad as The Great Depression, only different: “We’re better and worse off in some ways than the Great Depression, but mainly just different.”

The deflation that we are currently experiencing in the financial markets and real economy is only Phase I. Once the virus is contained and people start venturing out to spend and work, all the new money in circulation is likely to shift us from deflation to inflation (Phase II). I can’t say precisely how long Phase I (Deflation) will last because that greatly depends on the course of the virus and the lockdowns, which we don’t have the data to know yet. My guess is that it lasts ~6 months which would put us at the beginning of September 2020.  If that is correct and people start to work and spend again, Phase II (Inflation) is likely to begin. This will cause inflation to increase in the real economy, the dollar and treasuries to fall in price and a likely bottom in stocks. I now believe that bottom in stocks will come between ~1575 (the double top established by the 2000 and 2007 bull markets) and 2200, the recent low from last Monday (3/23).

This is exactly what happened in The Great Depression, though they were slower to act back then. It wasn’t until 4 years in (1933) that the Federal Government confiscated all the gold in private hands, devalued the dollar and began an extensive program of fiscal stimulus. As a result, Inflation (Phase I) was put to a stop in 1933 and we entered Phase II (Inflation).  This time around, The Fed and The Federal Government have acted much more quickly to stem the deflationary tide, likely shortening the period of Deflation (Phase I) and moving us to Phase II (Inflation) more quickly.

In sum, the coming crisis is likely to be divided into a short (~6 month) Phase I of Deflation followed by a longer Phase II of Inflation. Stocks should bottom at the end of Phase I, and my new target is 1575-2200, a big change from the 340-680 I put forward in “The Possibility of Civilizational Breakdown”. Don’t celebrate just yet, however. While stocks are likely to bottom much sooner than I previously believed, because of the fall in the dollar, their real value is still likely to decline: “In October 1922 [the share price index] dropped to 3/100ths [of its 1913 value in real terms]” (Ferguson, When Money Dies, pg. 118).

I hope everyone is practicing social distancing, staying at home and, in general, being safe out there while the medical authorities gather the data we need to implement sensible public policy about how, when and where to re-open the economy.

Best Wishes,

Greg Feirman
Founder & CEO
Top Gun Financial (
A Registered Investment Advisor
825 San Antonio Road #205, Palo Alto, CA 94303
(916) 224-0113

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