Financial Apocalypse 2020 » Be Ready For Stock Market Crash 2020 & Dollar'sCollapse - financialanalysis


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Wednesday, December 25, 2019

Financial Apocalypse 2020 » Be Ready For Stock Market Crash 2020 & Dollar'sCollapse

Waiting for a Financial End of the World
The world has frozen in anticipation of the global financial crisis. Some analysts predict its onset in the coming months, others give a delay until the end of 2020 - the beginning of 2021. But both draw quite apocalyptic pictures. The collapse in oil, copper and iron ore prices, falling stocks and currencies, layoffs and bankruptcies.

One of the most famous economists, Nouriel Roubini, believes that the crisis will begin very soon, at the end of 2019-2020. Recall that his previous forecast was completely accurate. And now, in an article in Project Syndicate, Roubini cites a number of signs of impending disaster. Among them, along with the trade wars that the US is waging with China, the EU and other countries, Roubini calls the increase in interest rates by the US Federal Reserve and the recession caused by the cessation of fiscal stimulus.

For these reasons, the growth rate of the American economy may slow down to 1%, as a result of which the country will face the problem of job shortages and unemployment. One should not forget that the foreign exchange reserves of most countries are denominated in US dollars, so the crisis in the US economy is very likely to cause a collapse around the world.

But Is the Situation So Terrible Indeed?
First, it is reassuring that crises are temporary and cyclical. If we turn to the theory of medium-term economic cycles, we will see that since the beginning of the Great Depression of 1929 they occur approximately once every 7-12 years.

The first crisis in the 21st century was the bursting bubble of dotcoms (primarily American Internet companies) in 2000. Since 1994, the NASDAQ index had grown by more than 500%, and on March 10, 2000, in just one day, it fell more than one and a half times. Then the fall continued until 2003.

The next crisis, 2008, was caused by a bursting bubble of mortgage lending in the United States. And now we are gradually approaching a new boiling point, which is based on the overheating of the American economy, intensified by the global instability. Last summer, the S&P500 index, whose basket includes 500 US companies with the largest capitalization, reached its maximum, approaching the mark of 3.000. And in January 2010 it was exactly 3 times smaller: 1.000. That is, for almost 10 years we have seen continuous growth in the US economy. ACCA chief economist Michael Taylor estimates this is the longest growth period in 150 years. And if we focus on the theory of the cyclical nature of crises, it would be time for the next of them to begin.

And What about Washington?
“Naturally, both Fed leaders and President Donald Trump are aware of this,” says John Gordon, lead analyst at NordFX brokerage. - And here we must remember that the next year, 2020, is the year of the next presidential election in the United States. If Mr. Trump wants to lead the country for the second time (and, apparently, he wants to), he just cannot allow the collapse of the American economy, falling incomes and rising unemployment. Voters will never forgive him for this. Therefore, we can observe lately how Mr. Trump puts pressure on the leadership of the Federal Reserve System, insisting on softening financial policy. And it seems that the Federal Reserve may follow the president’s lead.

So, after the Fed raised its base interest rate from 2.25% to 2.5% in December last year, three more, if not four, increases were expected until mid-2020. However, the opposite happened: from July 31, 2019. the rate has again become 2.25%. Fed Chairman Jerome Powell, speaking at the end of August at the annual economic symposium in Jackson Hole (USA), said that the Federal Reserve is ready to provide more incentives in case of a slowdown in economic growth.

Many other central banks, including the main regulator of Europe, the ECB, are also focused on easing policies. The leadership of China declares support for its economy as well. So there is hope that by joint efforts it will be possible, if not to prevent the crisis, then at least to push it back to 2021.

Yen, Bitcoin, Gold: An Equilateral Triangle
By accumulating resources, the largest US corporations are already redefining the priority of paying dividends to their shareholders, which makes us think again: what if the crisis breaks out in the coming months? What should one do? What assets to invest in, so as not to be left with nothing?

Currencies like the yen could be considered as a refuge. But they nevertheless strongly depend on the oil market and on the yield of US government bonds. For some time, the Japanese yen will be able to stay afloat. But, if the crisis is serious and long enough, its fate may also be unenviable.

What other options are there? Crypto enthusiasts, like Fundstrat analyst Tom Lee or Morgan Creek co-founder Anthony Pompliano, offer to invest in bitcoin, convincing investors that this virtual coin has already become a safe asset that can hedge currency risks. However, for many experts, this way of saving money raises fair doubts. “Answer the question on your own,” John Gordon of NordFX offers, “how reliable is Bitcoin if only from 08 to 15 August this digital currency lost more than 20% of its value, collapsing from $12,000 to $9,500? And this happened without any crises! "

With such frenzied volatility, Bitcoin is not a safe haven, but an ideal tool for high-risk speculation. Well and a refuge as well, but not from fluctuations in traditional financial markets, but from ... its younger colleagues in the digital market, altcoins, the interest in which is constantly falling. Of course, it is possible that at the time of the crisis, the price of the main cryptocurrency will rapidly go up. But it can fly down no less swiftly. Probabilities are 50 to 50. We are looking for a really reliable asset. And this, according to many experts, of course, is gold.
Over the past 20 years, this noble metal has risen in price from $275 per ounce in September 2000 to $1,550 in September 2019, bringing investors a profit of 460%.

According to analyst and producer of The Gold Forecast daily newsletter Harry Wagner, the last major bullish wave began at the end of 2015, after a correction of up to $1040, and suggests that gold can re-test the record highs of 2011, reaching in 2020 prices of $2070-2085 dollars per ounce.

Over the past year alone, since September 2018, the yellow metal has risen in price by 30%. According to the World Gold Council (WGC), gold demand in the first six months of 2019 reached a three-year high (2181 tons), mainly due to record purchases of the precious metal by Central banks, which are transferring their dollar reserves to more reliable assets, in their opinion.

“Of course, the numbers above look very attractive,” says the NordFX analyst. - And the actions of the Central Banks can be considered as an example. However, it must be borne in mind that if, in anticipation of a recession, the demand and, consequently, the price of this metal are rising, as the economy stabilizes, they may fall. Moreover, the fall may be quite serious. And the investor must have patience for the moment when the price moves up again to come: the process can take 5, 10 or more years. In this case, when we talk about hedging financial risks during global crises, gold can indeed be chosen as a preferred asset. As for the short- and medium-term speculations with it, this is a completely different issue, requiring a completely different approach, which must be discussed separately. However, in this case, gold can become a source of serious profit as well.”
The Wealth Redistribution Scam that Is "Inflation"The world over people are told that central banks pursue “price stability” by making sure that consumer goods prices do not rise by more than 2 percent per annum. This is, of course, a big sham. If the prices of goods rise over time, it does not take that much to understand that prices do not remain stable. And if the prices of goods increase over time, it necessarily means that the purchasing power of the money unit declines.As money loses its purchasing power, income and wealth are stealthily redistributed. Some individuals and groups of people are enriched at the expense of others. Savers and workers are swindled out of their deserved income and retirement benefits, while those who own goods that rise in value or who borrow money typically reap a windfall profit. Clearly, the banking industry is a major beneficiary of monetary debasement.

"Inflation" Is a Rise in the Quantity of Money
Central banks are the very source of the phenomenon that all prices of goods tend to rise over time. They hold the money production monopoly and increase — in close cooperation with commercial banks — the outstanding quantity of money through credit expansion, an increase in the supply of credit that is not backed by real savings. It goes without saying that it is rather profitable to be active in the money-production business.

The increase in the quantity of money results, and necessarily so, in higher prices compared to a situation in which the quantity of money has not been increased. This is no arbitrary assertion but stems from logical reasoning: a rise in people's money holding lowers the marginal utility of the additional money unit, meaning that the marginal utility of other goods that can be exchanged against money rises.

Consider the case in which the quantity of money in the hands of market agents rises. People will then exchange money balances (which have, from the viewpoint of the money holder, lost in marginal utility) against other vendible items (which have gone up in marginal utility). As people exchange money units against other goods, money prices go up (compared to a situation in which the quantity of money has not been increased).

The Mainstream Explanation and Its Problems
Of course, in real life additional factors (such as, for instance, demand changes, market introduction of new products, etc.) interfere with the link between the increase in the quantity of money and the rising prices of goods. This, however, by no means refutes the economic insight that a rise in the quantity of money in the economy leads to goods prices that will be higher than if the quantity of money not been increased.

The increase in the quantity of money is what deserves to be called inflation; rising prices are just a possible symptom of an increase in the quantity of money. However, mainstream economists typically define inflation as rising consumer goods prices. This, however, is problematic for at least two reasons. First, by equating inflation with rising prices, the real reason for higher prices, namely the rise in the quantity of money, is obscured.

This, in turn, gives rise to arbitrary explanations of why goods prices may go up: sheikhs who force up oil prices, unions that cause wages to rise, an overall buoyant economy that creates shortages in production factors, and so forth. All these pseudo-explanations deflect from the real culprit — the central bank, in cooperation with commercial banks, which issues new money, so that people no longer understand who, in fact, harms them.

Asset Price Inflation
Second, changes in consumer goods prices do not tell us the entire story, for they do not take into account asset prices such as, for instance, stock prices, housing prices, and land prices. However, the newly injected money can be expected to not only push up consumer goods prices, but also drive up asset prices. And like rising consumer prices, rising asset prices diminish the purchasing power of money.

In other words: asset price inflation destroys the purchasing power of money in the same way that price inflation of consumer goods does. Take, for instance, stock market prices. If prices rise from, say, $100 to $200, the purchasing power of the money unit would drop by 50 percent. The owner of the stock becomes richer, while the holder of dollars become poorer. In fact, this is precisely what has been happening in the last decades.For illustrative purposes, let us take a look at the chart above. It shows the development of the US quantity of money, nominal GDP, and stock prices from 1996 to autumn 2019. In the period under review, the US nominal GDP increased by 4.3 percent per annum on average. The quantity of money rose by 6.1 percent, while stock prices expanded by 8.1 percent. To the attentive observer, these numbers contain an important message.The increase in the money supply does not only raise prices of consumer goods, but also tends to raise all prices. For instance, in the period under review, on average, the real GDP in the US rose around 1.9 percent per year while prices of goods and services that are included in US GDP went up by 2.4 percent. The remaining “excess money” obviously pushed up stock prices and other asset prices such as for instance, housing prices.

Don’t Put Your Trust in Today’s (Fiat) Money
The lessons to learn are these: always think of inflation as a rise in the quantity of money. Be aware that central banks and commercial banks provide a kind of money that does not keep its purchasing power — that most people suffer losses when holding it for the purpose of storing wealth. Better not to put your trust in today’s money and keep your transaction balances as small as possible. Don’t be taken in by the inflation sham.

The insights outlined above should encourage all of us to join the call for better, sound money — money that lives up to the highest economic and ethical standards. This can be achieved by simply creating a free market in money, where people are free to choose the kind of money they would like to use, and where entrepreneurial spirits are free to make their fellow people sound-money offers.

A free market in money — which would be tantamount to putting an end to central banks’ money production monopolies — is actually easy to establish. Just strip the official currency of its privileged "legal tender" status and remove all capital gain and sales taxes on all media that stand an excellent chance to compete for becoming currency — most notably gold and silver but potentially also crypto units.

A free market in money will work wonders. Many of the evils that haunt our world today — be they chronic price inflation, financial and economic crises, boom-and-bust cycles, and even over-funded governments and aggressive wars, would be greatly reduced. One of the biggest challenges of our time is to reform our money. The solution is to open up the market in money.

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