A pandemic, a lockdown, and an economic collapse.
Followed by a bounce-back amid a summer U.S. reopening.
That’s the story up until now. But over the last few weeks, the recovery has slowed. Jobs aren’t being added like they once were, and GDP growth is stalling.
Of the 40 million payrolls lost, economists expect that 20 million won’t return. New jobs will have to be created to replace them.
That’s going to take a ton of work, business investment, time…
…and most of all, money. A whole lot of money.
As a result, scores of businesses – possibly hundreds of thousands – will shutter permanently. Hirings will freeze. Tax revenues will crater.
The immense federal deficit, which is currently on pace to hit $4 trillion, will balloon to once unimaginable heights.
But don’t worry, the Federal Reserve will save the day once again with more stimulus. Just like it did after the 2008 financial crisis.
And just like it did following the initial Covid-19 outbreak.
Fed Chairman Jerome Powell is targeting an inflation rate of 2% in a gambit that should plunder the dollar.
All while attempting to prevent America’s major corporations from going “belly up.”
By comparison, though, the U.S. has it easy. Many other prominent nations are now facing an even more grim situation.
French President Macron said that he’s “doing everything to avoid a new lockdown,” but the reality is that another one is likely on its way. 7,300 new Covid-19 cases were reported just days after Macron’s statement, marking the highest increase since March 31st. France’s economy is in a depression – the worst one the country’s experienced since 1949 – due to a complete shutdown of the transportation, restaurant, and hotel industries.
In Germany, Chancellor Merkel has cranked up “Covid-Mania” to 11 by warning the public that infections should only get worse in the fall and winter months. Meanwhile, the German economy is enduring its worst economic collapse since economists began measuring the country’s quarterly GDP in 1970. Investments are down to record lows. Exports have evaporated.
Spain is on the ropes as well after suffering the worst infection rate per capita in Europe. In August, the Spanish government reported that Covid-19 infections were on the rise again, thrusting the populace into a state of panic. Another lockdown would decimate the already weakened Spanish economy.
India, the world leader in daily infections, isn’t faring much better. The government tallied over 78,000 new Covid-19 cases in a single day in late August. India’s economy shrunk 23.9% in the second quarter. Its hotel and communication industries plunged 47%. Trade was down a stunning 47%, too. Construction got sliced in half.
Elsewhere in the world – Russia, Brazil, and South Africa – it’s just as bad. Each country is dealing with a worsening depression.
In response, central banks are expected to do what they always do when faced with economic strife:
Print copious amounts of money.
In emerging markets, where central banks do not command particularly strong currencies, investors will drop their local currencies in favor of more popular ones.
And across the world, there will be an unprecedented move to gold and Bitcoin – two “stores of value” largely viewed as safe-haven assets.
That shift is already taking place. Gold has done very well over the last few months.
But what’s experienced a much larger rise, long-term, is Bitcoin, along with a handful of key “altcoins,” or cryptocurrencies that aren’t Bitcoin. These digital currencies are set to explode even higher in the near future as they enter the mainstream once more.
While fiat currencies like the dollar, euro, and pound, get mass-printed into oblivion.
It’s not what bulls want to hear with equities trading at or near record highs. But it is the reality investors now face in a post-coronavirus world.
How they react, and where they position their money, will determine whether they end up on the right side of the coming “crypto exodus.”
Even if, at the moment, the market seems oblivious to the impending cash migration.