https://www.marketwatch.com/story/i...r-control-before-the-next-downturn-2019-04-10Public debt ratios are now “significantly higher” than before the global financial crisis across the globe, and governments need to get their fiscal houses in order ahead of the next global downturn, the International Monetary Fund said Wednesday.
Advanced economies have levels of public-debt-to-GDP ratios that are close to unprecedented in peacetime, the IMF said. At the same time low interest rates are helping to make it easier to finance these high debt levels.
Asked about calls from some economists for the IMF to change its orthodox thinking about the need for low budget deficits in the environment of low interest rates, Gaspar said it was an open question how long these low interest rates can persist.
https://usawatchdog.com/greatest-crash-in-history-coming-in-2019-bo-polny/Financial analyst Bo Polny ... thinks the next stock market selloff will start in June, but not everything sells off. Gold, silver and cryptos are going to spike higher. Polny explains, “The crash that comes in July is going to blow away the crash that comes in June. Then there is going to be a rush to safety. People will flee to safety. Remember, how much money have they printed? How much money do we not know that they printed? You know about that whole game of the $21 trillion in ‘missing money.’ With all of this money that has been printed, all of this money has to go somewhere. People will lose faith and confidence in this paper based system. The cycle . . . foretells the end of the paper based monetary system beginning in July. . . . Gold is going to jump in June initially. They are then going to try to hammer it back down. Once it jumps, they are going to start to lose control. When July hits, that’s when it will get pretty epic. By year end, Bitcoin, gold and silver will all, all be at new all-time highs.”
long read: https://www.linkedin.com/pulse/paradigm-shifts-ray-dalio/... I believe that monetizations of debt and currency depreciations will eventually pick up, which will reduce the value of money and real returns for creditors and test how far creditors will let central banks go in providing negative real returns before moving into other assets. ...
... I think that it is highly likely that sometime in the next few years, 1) central banks will run out of stimulant to boost the markets and the economy when the economy is weak, and 2) there will be an enormous amount of debt and non-debt liabilities (e.g., pension and healthcare) that will increasingly be coming due and won’t be able to be funded with assets. Said differently, I think that the paradigm that we are in will most likely end when a) real interest rate returns are pushed so low that investors holding the debt won’t want to hold it and will start to move to something they think is better and b) simultaneously, the large need for money to fund liabilities will contribute to the “big squeeze.” At that point, there won’t be enough money to meet the needs for it, so there will have to be some combination of large deficits that are monetized, currency depreciations, and large tax increases, and these circumstances will likely increase the conflicts between the capitalist haves and the socialist have-nots. Most likely, during this time, holders of debt will receive very low or negative nominal and real returns in currencies that are weakening, which will de facto be a wealth tax.
Most people now believe the best “risky investments” will continue to be equity and equity-like investments, such as leveraged private equity, leveraged real estate, and venture capital, and this is especially true when central banks are reflating. As a result, the world is leveraged long, holding assets that have low real and nominal expected returns that are also providing historically low returns relative to cash returns (because of the enormous amount of money that has been pumped into the hands of investors by central banks and because of other economic forces that are making companies flush with cash). I think these are unlikely to be good real returning investments and that those that will most likely do best will be those that do well when the value of money is being depreciated and domestic and international conflicts are significant, such as gold. Additionally, for reasons I will explain in the near future, most investors are underweighted in such assets, meaning that if they just wanted to have a better balanced portfolio to reduce risk, they would have more of this sort of asset. For this reason, I believe that it would be both risk-reducing and return-enhancing to consider adding gold to one’s portfolio. I will soon send out an explanation of why I believe that gold is an effective portfolio diversifier.
https://news.goldcore.com/us/gold-b...-and-silver-coins-as-global-crisis-is-coming/◆ “Get knowledgeable and get prepared as this crisis is going to be the worst in my life time”
◆ The next crisis is going to happen so fast that people may not have time to react
◆ The fiat currency experiment of the last 50 years is coming to a brutal end
More: https://moneymaven.io/mishtalk/econ...-it-s-the-debt-stupid-Hv0PnrNhCUWn1yDNTktL0g/The Fed desperately needs to keep credit expanding or the economy will collapse. However, it's an unsustainable scheme.
More: https://www.linkedin.com/pulse/three-big-issues-1930s-analogue-ray-dalio/The most important forces that now exist are:
1) The End of the Long-Term Debt Cycle (When Central Banks Are No Longer Effective)
2) The Large Wealth Gap and Political Polarity
3) A Rising World Power Challenging an Existing World Power
The Bond Blow-Off, Rising Gold Prices, and the Late 1930s Analogue
In other words now 1) central banks have limited ability to stimulate, 2) there is large wealth and political polarity and 3) there is a conflict between China as a rising power and the U.S. as an existing world power. If/when there is an economic downturn, that will produce serious problems in ways that are analogous to the ways that the confluence of those three influences produced serious problems in the late 1930s.
More: http://gata.org/node/19528The International Monetary Fund has presented us with a Gothic horror show. The world's financial system is more stretched, unstable, and dangerous than it was on the eve of the Lehman crisis.
Quantitative easing, zero interest rates, and financial repression across the board have pushed investors -- and in the case of pension funds or life insurers, actually forced them -- into taking on ever more risk. We have created a monster.
I think a scarier scenario is that they (central banks) have lost control of the beast (global financial system/debt) and they (IMF) are just being honest. Rickards has said in the past that these Davos/G20/IMF people communicate the high level stuff out in the open. aperbag:...
They gonna 'crash the system ' ... ?
https://www.linkedin.com/pulse/worl...0880811724801&trk=public_profile_article_viewThe World Has Gone Mad and the System Is Broken
I say these things because:
This set of circumstances is unsustainable and certainly can no longer be pushed as it has been pushed since 2008. That is why I believe that the world is approaching a big paradigm shift.
- Money is free for those who are creditworthy because the investors who are giving it to them are willing to get back less than they give. More specifically investors lending to those who are creditworthy will accept very low or negative interest rates and won’t require having their principal paid back for the foreseeable future. They are doing this because they have an enormous amount of money to invest that has been, and continues to be, pushed on them by central banks that are buying financial assets in their futile attempts to push economic activity and inflation up. The reason that this money that is being pushed on investors isn’t pushing growth and inflation much higher is that the investors who are getting it want to invest it rather than spend it. This dynamic is creating a “pushing on a string” dynamic that has happened many times before in history (though not in our lifetimes) ...
- At the same time, large government deficits exist and will almost certainly increase substantially, which will require huge amounts of more debt to be sold by governments—amounts that cannot naturally be absorbed without driving up interest rates at a time when an interest rate rise would be devastating for markets and economies because the world is so leveraged long. Where will the money come from to buy these bonds and fund these deficits? It will almost certainly come from central banks, which will buy the debt that is produced with freshly printed money. This whole dynamic in which sound finance is being thrown out the window will continue and probably accelerate, especially in the reserve currency countries and their currencies—i.e., in the US, Europe, and Japan, and in the dollar, euro, and yen.
- At the same time, pension and healthcare liability payments will increasingly be coming due while many of those who are obligated to pay them don’t have enough money to meet their obligations. ...
- At the same time as money is essentially free for those who have money and creditworthiness, it is essentially unavailable to those who don’t have money and creditworthiness, which contributes to the rising wealth, opportunity, and political gaps. ...
https://www.bloomberg.com/news/arti...ying-for-major-stock-sell-off-ubs-wealth-saysWealthy people around the globe are hunkering down for a potentially turbulent 2020, according to UBS Global Wealth Management.
A majority of rich investors expect a significant drop in markets before the end of next year, and 25% of their average assets are currently in cash, according to a survey of more than 3,400 global respondents. ...
Nearly four-fifths of respondents say volatility is likely to increase, and 55% think there will be a significant market sell-off before the end of 2020, according to the report which was conducted between August and October and polled those with at least $1 million in investable assets. Sixty percent are considering increasing their cash levels further, ...
https://www.zerohedge.com/markets/d...ther-if-our-broken-economic-system-isnt-fixed... Bridgewater founder Ray Dalio and Paul Tudor Jones - joined Yahoo Finance for the 2nd annual Greenwich Investment Forum earlier this month. ... PTJ and Dalio focused their "Fireside Chat" on the flaws of Fed policy, the dangers of America's ballooning budget deficit, and the steps that must be take to "stop us from killing each other" in a violent revolution, as Dalio warned.
More: https://mobile.abc.net.au/news/2019-12-20/world-bank-issues-global-debt-warning/11819542The World Bank has warned the largest and fastest rise in global debt in half a century could lead to another financial crisis as the world economy slows.
The 'Global Waves of Debt' report looked at the four major episodes of debt increases that have occurred in more than 100 countries since 1970 — the Latin American debt crisis of the 1980s, the Asian financial crisis of the late 1990s and the global financial crisis from 2007 to 2009.
The bank said during the fourth wave, from 2010 to 2018, the debt to GDP ratio of developing countries has risen by more than half to 168 per cent.
That was a faster increase on an annual basis than during the Latin American debt crisis.
Problematically, the rise in debt has been across both private companies and governments across the world, amplifying the risks if there is another global financial crisis.
http://www.oecd.org/economic-outlook/The impact of the Covid-19 outbreak on economic prospects is severe
Growth was weak but stabilising until the coronavirus Covid-19 hit. Restrictions on movement of people, goods and services, and containment measures such as factory closures have cut manufacturing and domestic demand sharply in China. The impact on the rest of the world through business travel and tourism, supply chains, commodities and lower confidence is growing.
The OECD became the first international organisation to sound the alarm about coronavirus on Monday, saying the world economy was “at risk” and warning of the possibility that global growth will halve this year from its previous forecast. Just the effect of the widespread closure of factories and businesses in China was likely to cut 0.5 percentage points from the global growth forecast in 2020, the Paris-based international organisation said, lowering its forecast from an already weak 2.9 per cent to 2.4 per cent. That puts the global economy on the verge of a recession, which is traditionally defined as growth below 2.5 per cent. If there was a “longer lasting and more intensive coronavirus outbreak, spreading widely throughout the Asia-Pacific region, Europe and North America”, prospects would dim further and global growth “could drop to 1.5 per cent in 2020, half the rate projected prior to the virus outbreak,” the OECD added. Calling on governments to act “swiftly and forcefully” on health and economic effects, it called for supportive monetary and fiscal policies to restore confidence even though it recognised that economic policies cannot offset the immediate effects of shutdowns in business activity designed to slow the spread of the virus.
https://www.linkedin.com/pulse/my-thoughts-coronavirus-ray-dalio/Ray Dalio said:I will repeat my overarching perspective, which is that I don’t like to take bets on things that I don’t feel I have a big edge on, I don’t like to make any one bet really big, and I’d rather seek how to neutralize myself against big unknowns than how to bet on them. That applies to the coronavirus. Still, there’s no getting around having to figure out what this situation is likely to mean and how we should deal with it, so here are my thoughts for you to take or leave. In reading them please realize that I’m a “dumb shit” when it comes to viruses, though I do get to triangulate with some of the world’s best experts. So, for the little that they’re worth, here are my thoughts.
As I see it there are three different things going on that are related yet are very different and shouldn’t be confused: 1) the virus, 2) the economic impact of reactions to the virus, and 3) the market action. They all will be affected by highly emotional reactions. Individually and together they lend themselves to a giant whipsaw with big mispricings, with the off chance that it will trigger the downturn that I have been worried would happen with both the big wealth/political gap and the end of the big debt cycle (when debts are high and central banks are impotent in trying to stimulate).
1) The Virus
The virus itself will almost certainly a) come and go and b) have a big emotional impact, which will most likely produce a big whipsaw. It will most likely lead to an uncontained global health crisis that could have high human and economic costs, though how it is handled and what the consequences will be will vary a lot by location (which will also affect how their markets behave). Containing the virus (i.e., minimizing its spreading) will occur best where there are 1) capable leaders who are able to make executive decisions well and quickly, 2) a population that follows orders, 3) a capable bureaucracy to enforce and administer the plans, and 4) a capable health system to identify and treat the virus well and quickly. It will require the leaders to turn on “social distancing” quickly and effectively ahead of the virus accelerating and to withdraw it quickly as it declines. I believe that China will excel at this, major developed economies will be less good but OK, and those who are weaker than them in these respects will be dangerously worse. For this reason, I am told that it’s likely that it will s pread fast in these other countries and roughly in proportion to those four factors I just mentioned, and likely as a function of the weather (e.g., the hot weather in the Southern Hemisphere is thought to be an inhibitor). Because it is spreading fast to many countries and the reported cases and deaths are likely to increase rapidly, the news is likely to rapidly increase panicky reactions. Also, in the US there will be much more testing happening over the next couple of weeks, which will dramatically increase the numbers of reported infected people, which will also probably lead to more severe reactions and greater social distancing controls. I am told that the stresses on hospitals could become very large, which will make handling the cases of all patients more difficult. In short, I am told that we should expect much more serious problems ahead.
2) The Economic Impact
Reactions to the virus (e.g., “social distancing”) will probably cause a big short-term economic decline followed by a rebound, which probably will not leave a big sustained economic impact. The fact of the matter is that history has shown that even big death tolls have been much bigger emotional affairs than sustained economic and market affairs. My look into the Spanish flu case, which I’m treating as our worst-case scenario, conveys this view; so do the other cases.
While I don’t think this will have a longer-term economic impact, I can’t say for sure that it won’t because, as you know, I believe that history has shown us that when a) there is a large wealth/political gap and there is a battle against populists of the left and populists of the right and b) there is an economic downturn, there are likely to be greater and more dysfunctional conflicts between the sides that undermine the effectiveness of decision making, and this is made worse when c) there are large debts and ineffective monetary policies and d) there are rising powers challenging the existing world powers. The last time that happened was during the 1930s leading up to World War II, and the time before that was in the period leading up to World War I. Certainly, the wealth gap and political conflict leading to possible policy changes will be top of mind along with the coronavirus on this Super Tuesday.
3) The Market Impact
The world is now leveraged long with a lot of cash still on the sidelines—i.e., most investors are long equities and other risky assets and the amount of leveraging that has taken place to support these positions has been large because low interest rates relative to expected returns on equities and the need to leverage up low returns to make them larger have led to this. The actions taken to curtail business activities will certainly cut revenues until the virus and business activity reverse which will lead to a rebound in revenue. That should (but won’t certainly) lead to V- or U-shaped financials for most companies. However, during the drop, the market impact on leveraged companies in the most severely affected economies will probably be significant. We will show you what that looks like shortly. My guess is that the markets will probably not distinguish well between those which can and cannot withstand well the temporary shock and will focus more on their temporary hit to revenues than they should and underweight the credit impact—e.g., a company with plenty of cash and a big temporary economic hit will probably be exaggeratedly hit relative to one that is less economically hit but has a lot of short-term debt.
Additionally, it seems to me that this is one of those once in 100 years catastrophic events that annihilates those who provide insurance against it and those who don’t take insurance to protect themselves against it because they treat it as the exposed bet that they can take because it virtually never happens. These folks come in all sorts of forms, such as insurance companies who insured against the consequences that we are about to experience, those who sold deep-out-of-the-money options planning to earn the premiums and cover their exposures through dynamic hedging if and when the prices get near in the money, etc. The markets are being, and will continue to be, affected by these sorts of market players getting squeezed and forced to make market moves because of cash-flow issues rather than because of thoughtful fundamental analysis. We are seeing this in very unusual and fundamentally unwarranted market action. Also, what’s interesting is how attractive some companies with good cash yields have become, especially as many market players have been shaken out.
As far as central bank policies are concerned, interest-rate cuts and increased liquidity won’t lead to any material pickup in buying and activity from people who don’t want to go out and buy, though they can goose risky asset prices a bit at the cost of bringing rates closer to hitting ground zero. That’s true in the US. In Europe and Japan, monetary policy is virtually out of gas so it’s difficult to imagine how pure monetary policy will work. In Europe, it will be interesting to see if fiscal policy stimulations can pick up in this political environment. Also, in all countries, don’t expect much more stimulation coming from rate cuts because most of the rate cuts have already happened via the declines in bond and note yields which is what equities and most other assets are priced off of. So, it seems to me that containing the economic damage requires coordinated monetary and fiscal policy targeted more at specific cases of debt/liquidity-constrained entities rather than more blanket cuts in rates and broad increases in liquidity.
The most important assets that you need to take good care of are you and your family. As with investing, I hope that you will imagine the worst-case scenario and protect yourself against it.