We are currently witnessing from the first row one of the deepest and possibly longest economic crises outside war times.
When will the coronavirus disease COVID-19 economic crisis end? I forecast the feeling that the current economic recession is over will come somewhere in the first half of 2021. Otherwise I foresee, purely measured by the fall in GDP the current economic recession will end, or with other words global GDP will start growing again, in either the fourth quarter of 2020 or the first quarter of 2021.
What makes me think the coronavirus economic crisis will be over in less than a year? First, the real reason for the current economic recession is the coronavirus pandemic. As long as the number of the infected people with COVID-19 keeps rising, few countries will dare open their economies, since the leaders of these countries will face allegations they are risking their peoples' lives. Judging and extrapolating the known numbers on the development of coronavirus COVID-19 infections, I prognosticate the coronavirus pandemic will be brought under control somewhere in the beginning or the middle of the third quarter of 2020.
My second assumption involves almost instant positive reaction from the economy, when countries open up for business again. People will have hunkered down for nearly half a year by the third quarter of 2020. People are social creatures and it is very difficult to keep people in virtual cages. Almost immediately after the global economy opens up again, we will see a significant rise in consumption. Optimism is one of the main reason humanity survived through the ages. Optimism is the driving force of the world's current social contract - capitalism. Optimism will save us again. As soon as the coronavirus disease COVID-19 is overpowered people's optimism will drive the economy to a relatively quick short-term recovery. I say short-term economic recovery, because I forecast it will take 3 to 4 years for the economies of USA, Europe and Asia to reach their peaks achieved before the coronavirus disease COVID-19.
Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn, Facebook etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed on the blog are Petar Posledovich's. Petar Posledovich does not guarantee the accuracy of the information presented on this blog and social networks. The information presented is "as is".
Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.
Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!
Respectfully yours,
Petar Posledovich
2 comments:
The bear stock market is an opportunity to buy stocks as Graham Greene says in the "Intelligent Investor", but always we have to ask "at what price"? PE ratios are still extremely high.
House prices are 3-4 times overpriced almost everywhere - 10 year rent should be able to pay off the house, not more.
Bonds return negative interest and holding them is a pure speculation. We know what is the difference between a speculator and investor (Greene).
Gold is volatile, silver as well.
Deposits have negative interest.
Junk bonds are a speculation in times of risk of no payments drain.
Oil trades at lowest prices ever imaginable.
We went from times of low volatility, 'tamed' VIX below 10 USD, into times of high volatility - VIX is greater than 35 USD.
High volatility means high risk of losing capital. The question is how to preserve capital.
Cash is very interesting from mid-term perspective - Cash in terms of CHF and JPY.
The Swiss Frank appears to be a short term safe haven, since it is relatively stable and tends to appreciate over time against all other currencies.
In times of negative real interest rates, as it is the case at recent times, holding JPY is relatively safer than holding any high grade bond.
So a basket of CHF and JPY would even have a good 2% annual return against the USD and the EUR without paying taxes on deposit.
Even though the central banks are 'printing' money to fight deflation - the world is full of paradoxes. So when Ray Dalio argues that 'cash is trash' in my view he is referring to the aftermath of a heavy central banks response of a deflationary
event, which has not yet occurred.
Growing debt is extremely deflationary, it is not inflationary. If central banks are granting loans, not monetizing debt - this is not inflationary, but deflationary, because debt does not go away, on the contrary it piles.
The same holds for enterprises and private individuals - the restructuring forbearance programs are deflationary because in most case the debt burden gets even higher.
Debt is always either serviced, defaulted or inflated in some proportions.
During tough times it is more defaulted and inflated than serviced.
Since we do not know the proportions deflation/inflation scenario we need a balanced approach - preparedness for both at the same time.
Having some cash in CHF and JPY could be a prudent short term strategy in the deflationary environment we are at.For the inflationary part of the post deflationary period - holding gold and silver should do.
Holding those 'hard' currencies and precious metals seems to be relatively safe investment in that environment, since it covers the deflation/inflation argument of the deleveraging cycle and serves as a certain margin of safety with relatively small risk of having a loss.
*Note: Benjamin Graham, author of "The Intelligent Investor", not Graham Greene.
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