Henrik Zeberg, chief macro economist at Swissblock, has confirmed his prediction that a U.S. recession is inevitable, but not before a acute rally in financial markets, including a significant raise in the value of bitcoin to between $115,000 and $120,000. In his latest analysis In an article published on X, Zeberg elaborated on the cyclical nature of markets and how they respond to historical economic indicators and current fiscal policy.

“REMEMBER!? In December 2022, everyone was BEARISH! I was BULLISH! We were told that an “imminent crash” was ahead of us – despite the fact that the market bottomed in October 2022,” Zeberg reiterated in his post. He presented his elaborate forecasts for the major market indices and Bitcoin, indicating an upcoming “blowout.”

Bitcoin faces first-ever recession

A “blow-off top” refers to a sudden, rapid price raise in financial markets, followed by an equally rapid decline. This pattern is characterized by intense buying pressure that drives prices to extreme highs, often fueled by speculative or euphoric behavior among traders. This price raise is usually unsustainable, leading to significant selling as traders take profits or respond to overbought conditions.

Zeberg’s predicted top blow could be triggered by the US Federal Reserve injecting massive amounts of liquidity into circulation to prevent a recession. Based on this, Zeberg predicted that the S&P 500 would rise to 6,100-6,300, the Nasdaq to 24,000-25,000, the Dow Jones Industrial Average to around 45,000, and Bitcoin to $115,000-120,000.

Zeberg’s bullishness contrasts sharply with his gloomy post-rally outlook. “We’re not there yet… but the recession IS COMING – and it will be the worst since 1929. Major bear market (in 2 phases: deflationary and stagflationary – separated by a mid-way rebound when the Fed steps in in 2025),” he explained, suggesting a convoluted recessionary cycle influenced by both market dynamics and Federal Reserve (Fed) policy.

The economist’s skepticism about the effectiveness of the Federal Reserve’s upcoming rate cuts is rooted in his detailed critique of similar historical measures. Despite market expectations for a 25-basis-point cut at the next FOMC meeting in September—a move supported by 73.5% of market participants, according to the CME FedWatch tool, with a smaller share (26.5%) predicting a more aggressive 50-basis-point cut—Zeberg remains unconvinced that they will prevent recessionary pressures.

“But… but… Fed rate cuts…. The world economy is collapsing. US recession starts in December 2024,” Zeberg said, reflecting his belief that short-term liquidity injections are insufficient to counteract deeper economic maladies. He points to indicators of the liquidity cycle comparable to those of 2007, questioning the effectiveness of such strategies in preventing the 2008 financial crisis.

In addition, Zeberg highlights the recent end of the inversion between the yield on the 2-year and 10-year U.S. Treasury bonds, traditionally seen as a predictor of an economic slowdown. An inversion in which short-term yields exceed long-term yields is typically a signal of investor uncertainty about the near-term economic outlook.

Another pillar of Zeberg’s argument is the latest labor market data. The U.S. Bureau of Labor Statistics revised its March 2024 total employment estimate down by 818,000—the largest revision in 15 years—indicating significant weakness in the labor market, much more pronounced than initial estimates suggested. “The economy is much weaker than expected,” Zeberg said.

At the time of going to press, the price of Bitcoin was $60,764.

Featured image created with DALL.E, chart from TradingView.com