2020: The crisis is coming…
UPDATE: COVID-19 makes the stock market plunge
The risks of a crisis are even greater. The FED is injecting 1500 billion to maintain its economy. Time is running out. The solution? At the end of this article.2020: L’année de la crise, 3 signes qui ne trompent pas
- Banks no longer believe in the future:
In 1986, finance professor Harvey Campbell theorized that if long-term (10 years) interest rates are lower than short-term (2 years) interest rates, there is a good chance that a crisis will occur within “12 to 18 months”. Logical you might say. If banks overvalue the short term it is because they do not believe in the long term. This theory has remained valid for the last forty years. Moreover, it has been verified during the last three major crises of 1990, 2001 and 2008.
Guess what: This phenomenon has happened again in March 2019. This is the first time since the 2008 crisis. So a recession is very likely in the coming months. (Financial Times, 2020)
2. The politicians have fooled us
“Growth”… that magical thing that allows you to always have more money…Really always?
Between 2018 and 2019 it decreased by about 40% in the US, according to figures from the US Bureau of Economics. At this rate, we will reach negative growth between 2020 and 2021. This will put us into a recession.
This is all the more alarming because Donald Trump’s policy is supposed to be pro-growth. But despite this policy, growth is declining. Add to that the trade war with China and the likely Coronavirus pandemic and you have an explosive cocktail. I am not an alarmist by nature, but this is a lot of evidence.
3. Investors create a gigantic bubble
As you are probably aware, stock prices are constantly rising. The shares of the 500 largest US companies have risen by more than 25% in 1 year (see S&P500), however, the bonuses per share have decreased (source: CNBC)
If the value of your company is increasing, I guess you would want to be paid more, right? So why are shareholders willing to be paid less? The answer is simple: it’s to increase the value of their shares so they can sell them at a higher price. It sounds basic, but by this simple strategy, they inflate the price of their shares. This is far from the real values. As a private individual, it is very difficult to know when this may break out, so you need to be prepared now to avoid collateral damage.
According to the Harvard Business Review, the top 500 companies have bought back their own shares for $806 billion. This inflates their prices and is very “dangerous for the economy” because the prices are artificial and can collapse at any time.
Conclusion
The signs of an upcoming crisis are evident, with banks no longer believing in the future, declining growth, and investors creating a gigantic bubble. The current COVID-19 pandemic has only worsened the situation, with the FED injecting trillions of dollars to maintain the economy. It is crucial to be prepared now to avoid collateral damage and protect your investments. The solution may not be clear, but staying informed and taking necessary precautions can help mitigate the impact of the crisis.
