The world is now facing the greatest crisis in history, and much less than 0.5% of people are prepared for this …
There are no safe assets. In 2002 we recommended our financiers to hold up to 50% of their financial properties in physical gold. Today in 2020, I consider that as much as 100% is the ideal figure considering that there are no safe assets other than for physical rare-earth elements.
We are now at the end of the only really worldwide property bubble in history, fuelled by a financial obligation surge of impressive proportions. Never ever before have all significant economies peaked together, powered by quadrillions of credit creation, cash printing and derivatives.
UBER-OPTIMISTIC INVESTORS WILL BE SHOCKED
Although the magnitude of this booming market is higher than anything seen before, the psychology of the present market resembles previous speculative bubbles whether we take 1929, 1973, 1987, 1999 or2007 At the stock market peak of these durations, psychology reached uber-optimism. In 1929 for instance, the Yale financial expert Irving Fisher mentioned in the New york city Times: ” Stock costs have actually reached what appears like a completely high plateau”. 3 years later the Dow had lost 90%.
Whether markets peak now or climb slightly greater is irrelevant.
WILL CORONAVIRUS BE THE TRIGGER
The driver for the coming market and financial obligation collapse might be a number occasions. If the Coronavirus does not miraculously stop spreading quickly, it might highly likely be the trigger for the world economy coming to a stop.
A Lancet study by the University of Hong Kong has actually estimated that the Chinese authorities have actually downplayed the Coronavirus epidemic significantly.
Instead of the official figures of around 1,100 deaths, there are other numbers stating 25,000 dead in overall or perhaps as high as 10,000 each day. During the 1918 Spanish Flu, 2.5% of the victims passed away or an estimated 50 million. The Wuhan figures show a death rate of 5% which would be incredibly serious if correct. That is extremely low compared to the Black Death which killed half of Europe’s population in the mid 14 th century.
If the number of cases increases as quick as the Lancet quotes, the infection will quickly spread around the world. There are already cases on all continents therefore far there are officially 49,000 cases in a minimum of 25 nations. For example, 5 Britons in a French ski resort were contaminated by a Brit who had been to a conference in Singapore.
400 MILLION CHINESE ON LOCKDOWN
Currently 400 million Chinese are on lockdown. Based on the Lancet figures, all of China could be quarantined in a few weeks’ time.
More than 80% of the production market is closed and 90% of the export industry.
We must advise ourselves that the Chinese economy is 17% of the world economy and any shutdown of the production engine of the world will have serious consequences for the remainder of the world. Also, Chinese debt has taken off. It was $2 trillion at the beginning of this century and is now $42 trillion. As the Coronavirus crisis spreads, a huge part of this debt is most likely to become junk.
Considering that the Chinese authorities are reducing most information when it comes to the Coronavirus along with its impact on the economy, it is incredibly hard to establish what the genuine figures are. Based upon the numerous reports we get, it is quite particular that the real figures are substantially worse than the official ones.
INTERNATIONAL QE WILL FLOOD MARKETS WITH WORTHLESS CASH
With extreme pressures in the US and European financial systems, both the Fed and the ECB have actually started aggressive QE programs. China will now have to begin a considerable program of liquidity injections to prevent a collapse of its financial system.
As the world’s manufacturer is on lockdown and a severe pandemic spreading around the globe, the remainder of the world seems to live in cloud cuckoo land. It is rather unreal that the Dow simply reached a new high and the Dax in Germany was not far from the high.
With world trade possibly about to shut down, stock market investors live on a various planet. But the music is about to soon stop and when it does, the world is likely to go into shock with crashing markets and failing banks on a much greater magnitude than 2006 -9.
BOND YIELDS ARE INVERTING AGAIN
In bond markets the ” flight to security” has resumed. Financiers are piling into United States treasury bonds with both 10 and 30 year yields having denied again and approaching the all time lows. Likewise, the yield curve has actually inverted once again with brief rates being greater than long. A yield curve inversion is typically an excellent predictor of a coming economic downturn.
To me it is incomprehensible how anyone can call an US bond “SECURITY” This is a financial obligation paper provided by a virtually bankrupt debtor in a currency which will collapse similar to most other currencies. There is definitely NO security in an US bond or any other sovereign bond for that matter. Due to the fact that these bonds can not and will never be repaid in cash that has a genuine worth. The most likely destiny for these bonds is at finest an indefinite moratorium or more probably a default. If there was any repayment it would be in absolutely debased, worthless cash.
THE GOLD PERIOD IS BEGINNING
Our company entered the physical gold market in 2002 when the rate was $300 At the time we advised as much as 50% of financial assets in gold to our investors. Since then gold is up 5-6x in a lot of currencies. Gold has actually also exceeded all significant property classes, consisting of stock exchange, in this century.
Back in the early 2000 s I was completely convinced that gold would be the best protection versus a precarious monetary system. My issues were vindicated with the 2006 -9 Great Financial Crisis. Unbelievely, central bankers handled to conserve the system momentarily. But this has actually been at a huge expense which has put the system in a much riskier position today. Global financial obligation has actually doubled from $125 trillion in 2006 to $260 trillion today. When debt doubles, risk increases significantly.
There are at least 3 dozen dangers that might activate a collapse of the system. If the Coronavirus spreads out considerably around the world, this is another factor that could act as a driver to crash an already vulnerable system.
As I currently specified, investors are residing in cloud cuckoo land. They don’t understand that there are no safe properties today. The bubble markets in stocks, bonds and property are extremely risky. Few people will understand that up until it is too late.
Just look at the Dow.
As I said, I was already encouraged in 2002 that gold was the very best asset to hold as insurance and wealth protection. Holding up to 50% already then was rather aggressive but has actually proven to be the correct suggestions.
But today the world remains in a totally different position. Although gold is up a number of hundred percent since the early 2000 s, the bull market in gold has actually hardly started. Adjustment in the paper gold market by the BIS (Bank of International Settlement) and bullion banks has held the rate down substantially.
In June 2005, William R. White of the BIS in Switzerland, said that a person of the goals of reserve bank cooperation was to utilize ” joint efforts to influence asset prices (especially gold and forex) in situations where this may be thought useful.”
This intervention is likely to stop working at some time soon as holders of paper gold request delivery. And because paper claims are 100 x greater than the readily available physical gold, this will lead to defaults in the paper gold market and the rate of physical gold surging.
It is critical to comprehend that physical gold has no counterparty threat and is:
- Real cash
- Nobody’s liability
- An inflation hedge
- A crisis hedge
- The only currency that has endured in history
The world is now dealing with the biggest crisis in history.
Egon von Greyerz
Founder and Managing Partner
Matterhorn Possession Management
Phone: +4144 213 62 45
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