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The washing machine!

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...

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This is going to hurt! Let's start with a summary picture of what happened this past week.

Total fear, not one hint of greed left. It's going to hurt, because this fear is of what's coming, whereas... it has not fully come yet. If you have a few minutes to spare, have a look at some videos of how people in Wuhan/China fought against the Corona Virus for 7 weeks. After this, if you still believe that The King of US and his dealings of the crisis so far will save the world as we know it, then it's about time you confront the reality... I'm going to help. But it's gonna hurt...

First, a few words on the virus itself. The situation evolves so fast that what I am writing will be outdated in a few days. Still, there are some important facts telling us that we have seen nothing yet. Here my few highlights, ordered by best to worst:

  • It is possible to contain the virus when tackling it as a national battle for survival. South Korea is testing 20,000 people per day, which means 240,000 people tested so far. That is 4,000 tests per million people. Thanks to this extreme approach, they are containing the virus within a month (but still 110 new cases yesterday).

  • After a complete lockdown, China has practically contained the virus with only 11 new cases today. Now it's the good news, because the bad news behind this is that 7 of these 11 cases were imported from out of China. Despite all their efforts to contain it at home, it's coming back from abroad.
  • Europe is at the center of the epidemic right now, and all countries react in a very uncoordinated way. Why is it called European Union if there is no union on the most important threat? Here below is the situation in Italy. Does this look like a containment to you? And unlike most other European countries, Italy has taken more drastic measures earlier. They went into a local lock down within one day of discovery of the first cases, then a regional lock down, and now a country lock down. The same cannot be said of other European countries, with France even holding local elections this week-end 🤭.

  • Now, as if Brexit was not enough to signify a different path for its future, here is the answer from UK to COVID 19. This past week, the Chelteham racing festival took place with 250,000 people gathering in packed crowds to yell at horses and pat themselves on the back. When mainland Europe was going exponential on contamination, the UK decided to stage the largest contamination event on the planet 😳 😳 😳

  • I kept the worst for last. Yes, it's the USA... Total number of people who got tested: less than 10,000. In an entire month, not even coming close to one morning of South Korean activity. That's 26 tests per million people (less than 1% of South Korea). Current stage of the contamination: day 15. At day 15, South Korea's case were on the flat zero line. So was Italy. The US has not yet seen it, and the US is not prepared. With a King-President who still thinks that the virus is foreign and that those with a US passport can keep total freedom of movement, that's going to end very very badly. In addition, because of ultra-high cost of healthcare in the US, most infected people have not been taken into care and isolation. And as for the way of living, the US is not mentally prepared to go all the way as China or South Korea are prepared to go. It's going to get a lot worse, and it's unlikely to get contained. If the US were acting properly, take the Italy graph and multiply at least by 10. But as they don't, who knows how parabolic it's going to be? Ah, one last thing... one of the 11 new contamination in China yesterday was coming from a person travelling from the US! Every way you look at it, the US is an untested Chelteham breeding ground with a population of 330 million.

That's it for now regarding the wisdom of our elected governments. Then... there is too much to say on our inapt financial institutions that I will keep most for a later post. I will only say this: this past week, we have seen all of them playing their hand, and their hands were kind of very bad.

  • The ECB acknowledged that it cannot lower its rates (it's already negative, what else can you do), so it sent back the puck into the head of states, saying it's their role to manage the situation, and not the ECB. OK, the ECB is so weakened that it's not going to be of much help anymore... As the Politicians are not in union but in constant wave surfing mode, there will be no good option in Europe for years, probably decades. Europe is the new Japan. Ageing population, zero growth, zero rate for ever, an impossible fight for maintaining a past way of life.
  • The Bank of England played its hand and lowered the rate by 0.5%, which means they are now at their lowest in history. They too are approaching the end game. With Brexit not yet in full force (now the UK is even more likely to crash out of Europe without a deal) and with a new careless budget (spend spend spend) announced this past week, the UK is on a very slippery road. This year will be defining for the next decades.
  • The FED lowered by 0.5% a week ago, and will likely lower again next week. Another month or two, and they will be at rock bottom too. Now, the FED is a different beast, because ultimately, it is the money printing machine of the entire world. These past few days, they have decided to print as much as they have printed in the many years of the last financial crisis. Printing 🤑 printing 🤑 printing 🤑... but without an economic activity to sustain, as the real economy is going to be halted even more in a few weeks. They are giving it the fight of their life. This is the one fight to watch, amid the total incapacity of the US government to contain the health crisis.

I will come back to this financial and economic disaster later, as what is happening is the fabric of our future's new normal. For now, our best bet is to assume that the economy is going to tank like it never has before. Like once in a century type of event.

That brings me to the most important part. The world is changing fast. The patterns of the past will not work as well in the future. Those who can see the new patterns forming and adapt will do well, those who don't will be stuck in the washing machine at 1,500rpm for months and maybe years 🤮. I give you a few super important principles that I see forming. These are my views, and I can be right or wrong, time will tell. But I will position myself to make the most from these views.

  • In the future, life is going to cost a lot more. We are entering a new phase of de-globalisation. Globalisation made your life cheaper at the expense of making the fabric of the world a lot more fragile. De-globalisation will make your life more expensive to keep it running.
  • We are in for low interest rates for ever. I mean by this, if you are 25 year old, you can bet it's going to stay low until you retire. That means zero interest to savers for decades and blow off debt for countries who will go even more into free debt, putting more tax pressure on future generations .
  • Risk is going to increase. If you think it's hard to work and earn money, wait until you have to make money work for you and constantly fight avoiding loosing it all... We will have to deal with risk management and for this, education will be your best asset.
  • This money printing to oblivion will blow out at some point. I would not be surprised if financial assets (and your home is in the pack) will go hyperbolic once more in 10-15 years (well, so long as the virus is contained and we do not end up with a million death...). There will be a crisis short term (1 or 2 years?) but then assets will be priceless. Mortgages over 50 years everyone?
  • More than ever, income is what matters. In this new world, income is going to be less predictable, more squeezed, more taxed, more at risk than ever. Make sure you protect yourself with several steady streams of income.
  • Cash is King. However much I loop up to Ray Dalio, I still cannot digest that he said last month at Davos that Cash is Trash. Just at the top of the bubble... Cash is King, and cash will give you the best opportunities of getting bargains in the next 2 years.

So much happened in the past week that I feel I could write for a year an not be finished. The next few weeks are key to our future world. The biggest forces are battling for power and control. We can see clearly that it's everyone for themselves, trying to keep their interest afloat by sinking their neighbours. The question is who will come on top, and what kind of permanent damage this will do to the whole fabric of the world? Any way I look at it, the world as we knew it is gone, and a new order is coming. New patterns, new drama, new opportunities.

This post is too important to be left just for yourself. If you read it to this point, please forward it to all your friends. Make sure they understand the situation and start educating themselves. Make no mistake, we are in the washing machine at 1,500rpm. It's time to have the right understanding of the situation, so that we can make the right decision for the future, a future which is not going to look like the past.

To your journey!

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