Today is Father's Day. And today, for the first time since I started this blog, we have a guest post! 😋
But not any guest post.
When I was young, I was always looking for ways to learn from the older and wiser. My dear Friend, today we have this privilege as we have a wiser person giving us his view on life and money. Just read-on!
We live in a world full of opportunities.
Even more so now than at any time in the past 10 years.
But the question is: who is at the good end of the opportunity stick?
If anything leads the way, it is the stock market. With instant pricing (and mis-pricing 😮), it gives us a hint on what the opportunities will look like in the months to come in our slower world.
Have you felt recently that there is a bit of a disconnect between price and value?
Have you perceived a kind of hidden inflationary pressure on some everyday goods and services, whilst at the same time witnessed a total deflationary vortex on some larger assets (for example your car or your house)?
In the midst of this crisis, we may be at the beginning of a bigger change. We may be at the beginning of a bigger disconnect between price and value. Inflation? Deflation? Read on...
I am old enough to have seen a few crisis, those who happen once every 7 years on average.
And I wise enough to know that the price of anything you buy can drop to zero in the worst circumstances.
What my brain was not ready to process however, is that in very stretched circumstances, the price of goods can turn negative.
And as a matter of fact, not just negative, but big time negative.
Welcome to our new world, a world full of risks and surprises. Let's review the short, mid, and longer term consequences of a sudden negative oil price...
The last 10 years of US employment got wiped out in a month.
I am talking about 22 million people who filed for unemployment aid in the past 30 days or so in the US.
It would look like our societies have been built on sand, and whatever comes next, we'd better build it on better foundations.
This pandemic has ripped through the world as we knew it, but let's be clear: the world as we know it was awaiting the pin that would make it explode. It came in the form of a virus. It could have been anything. Our globalised world was too fragile...
In my book Out of the Rat Race, I compared stock trading to being minified and sent into a washing machine.
An experience I do not wish to anyone 🤢.
This past week, it's not just stock trading which was put in the washing machine at 1,500rpm. No, it's the whole construct of our societies. I talked recently about our fragile world. Well, it was fragile. Now, it's broken. You'd better adapt to the new normal, 'cos old world ain't coming back! Buckle up, it's gonna spin...
Yep, it's the economy, and as I mentioned last week, it's looking rather fragile...
It's not going to take a prediction guru now to say that a recession is coming.
Well, the central bankers will still insist that everything is under control, but hey... we've seen this movie not so long ago.
I even remember the long queues of people at the door of Northern Rock (it used to be a bank in the UK, in 2008...)
So... 🔮 what's up Doc?
The past week has been both a confirmation and a revelation:
we live in a very fragile world, where equilibrium is painfully obtained at the cost of adding more fragility into the mix.
This is the story of mixing an upcoming pandemic with a world on permanent financial injection. Like all stories, the truth comes when the main characters are pushed to the extreme. Are you ready to face the truth?
So much is happening this week, it's hard to pick the most influential of these events... With Brexit on the way to being done as fast as New Blue England can command the rest of the UK... With the US/Chinese apparently finally agreeing on stage one of "The Deal" (whatever it is, nobody really knows yet)... With the Fed now admitting pumping half a trillion USD in what they call "repo" (giving cash to the friendly banks)... And with the Climate Change / save the planet week... What is the biggest event that will define the next decade? I chose none of these. Let me tell you how a company sold 1.5% of its shares this past week.
As we know, commercial banks are in the business of issuing promises.
These promises are nothing else than debt (your debt to the bank) in exchange of a contribution towards your home purchase.
Your debt is then immediately recycled into the economy as the previous owners receive real money in exchange of selling their home.
They pay their own debt, tax, fees, and the rest becomes real money which got created by this ingenious system (and the invisible man 😉).
Now, with each year going by, this business model is looking more and more dated and past century than ever.
What does this mean for us?
As its name badly indicates, the S&P 500 Energy index contains... not 500 but 28 companies. Still, you find in there the largest US listed companies providing energy to more than 300 million people, such as Chevron, Exxon Mobil, and another 26 peers. Why bother you ask? Well, this week, one company alone got worth more than the entire energy sector in the US. This company is called Apple.
Brexit got delayed again today, for what seems to be the 1000th time... As a Frenchman having made my home and life in the UK (nearly 20 years now), one would think I would be pro-Europe. In principle, I am. Had I been allowed to vote, I would have voted remain. But as we can see, politics are more and more un-principled. Bloody hell, get done with it and sign this Brexit divorce now!