As I mentioned six weeks ago now, we live in a fragile world. If it was possibly presumptuous a mere month and a half ago, it is a banality right now. So, where do we go now? What is the strategy to navigate the slump? And the so called recovery? As usual, I will try to say shit when I see 💩...
First, let's talk once more about the vacuum in which we are. Or is it a vortex? Anyway, it swallows all those in its vicinity. Individuals, companies, countries... No difference! They all come in with their respective income, expenses, assets and liabilities. And the vortex punches holes relentlessly in the income and asset sections. To all of them. No difference!
The guardians of the system in place, yes you guessed it, the Central Banks, are printing money like mad to fill the gaping holes in the income and asset sections of individuals, companies and countries. The most powerful ones send paychecks to the mass of people. They also force their baby banks to loan money at nil point and with state guarantee, although the baby banks have been probably too slow or too cautious at times. Therefore the Fed is now even allowing big corporations to come direct to them for funding 🥳. And of course, there is the "nearly normal" money printing for the countries (US, UK, Eurozone, Japan, China... all Central Banks run the printing press). Well, after the 10+ years of money printing for plugging their countries debt holes, we have to think this part is kind of normal, haven't we 🤫? On top of this, the Fed also buys junk bonds and corporate debt ETFs on the market... If you remember well, others bought stocks too, like the Swiss Central Bank preferring AAPL to Gold. Well, let's not make too much of this for once. They are just plugging the gaps in income and assets of the whole planet 🤕.
That leaves us with a new situation. A kind of new world which is forming slowly but surely. The powerful forces battling for keeping their power, as I wrote time and time again. We are led to believe, by the powerful marketing and (dis)information lobbies and other super-heroes that there is a V shape return to normality, or maybe it's a U shape, but it's still a return to normality. And as the reassuring Queen of the Anglo Saxon World said recently, we will meet again...
Well, I do not buy into the V, the U, the W and the alphabet of return back to normality. No, there will be a new world, and it will be different. We may meet again, but there will be winners, losers, and for sure... the dead ones will not meet again!
No, the economy is very unlikely to recover on its own after having told 22 million of people to go F🤬, take their $1,200 universal income, and once more shut the F🤬 up. Because these 20 million people will not buy stuff with no money. And that's the US, the country believed to be the best of them all. What will happen to another 4 billion people who are in the so called "Emerging Markets"? No, I cannot see much demand coming from all these people with no money.
No demand means a potentially deflationary pressure on most goods and services. I still kind of believe and expect that food will be more expensive, but for the rest, you will have more people trying to sell their stuff (not necessarily brand new, just the stuff of last year is already good enough and plenty enough!) for no money. Take Boeing. Who on this planet is going to buy airplanes in the coming years? If I had a larger garden, maybe I would start buying airplanes for a few quids, park them, and wait a decade until they are worth something again... OK, it's a joke, but who is going to buy brand new airplanes? And brand new cars? And all this stuff that we do not need... 🤦?
Big deflation for goods and services. That's in the cards.
However, with the trillions and trillions of money printing, surely something else will have to give. My guts tell me that we have seen a bit of a rehearsal in 2008 and 2012, with the financial crisis. There was a rush to the bottom as to which country would devaluate its money faster than the other. One day you think the Dollar is worth nothing, the next day you think, hold on, shit, no it's the Euro which is worth nothing, and by the time you think you got it, China has devalued by another 25%! This is coming back. Except that instead of printing a few hundred billions, now they print trillions. So it's going to come back BIG TIME. In these circumstances where fiat money devalues relative to each other until nobody wins, I still expect the king of currency, the USD, to be the safest heaven. And then at some point... let's take a big deep breath... maybe in the end Dalio was right: cash is trash 😱.
Because maybe at some point, the store of value is not cash anymore. Because cash will lose value to real hard assets at a pace that will not be acceptable. Maybe at some point, you should not have your money in cash, but in good assets. In fact, to be frank with you, I have started this slowly but surely for myself a few weeks ago. I moved a good chunk of money from GBP to USD, and then I invested my USD into what is better than cash.
In our new world, we are faced with an economic deflation (stuff are worth nothing) and a monetary inflation (cash is worth nothing). In this new world, some assets will do better than others. You do not need a magic crystal ball for this, the trend is already set in motion. In this new world, we will also have to expect more taxes. It's a given. All this debt used to plug the gaps in income and assets will have to be repaid. Individuals will be taxed more. Companies will be taxed more. And guess what, in some ways, countries will also be taxed more too (the tariffs, the King of US's 5%, then 15%, then 25%... that was only the beginning).
A new world where countries pay tax to each other... Who thought it would happen? The new world will also need to be less fragile. Instead of an optimised and productivity driven world (the pre COVID19 world), we now enter a world which will need to build more resilience and self-sustainability. An anti-fragile world if you want. Less global, more local, more able to cope with risk.
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We forgot what risk was. In the new world ahead, we will have to respect risk.
To your journey!