Coronavirus Masks the Real Causes
Written by Philipp Stirnemann on February 10, 2020 in Uncategorized

The Coronavirus is only the trigger

It is February, and the US yield curve has inverted once more. For those who don’t know, an inversion of the yield curve is considered a reliable signal of a recession within the next 6 – 18 months. As the yield curve has already inverted in summer 2019, a recession is likely to hit before the US presidential elections – while Trump is still pretending to have the greatest economy in history.

The real boom is occurring not in the US economy itself. Instead, its government debt is booming like never before. The US are, in fact, already completely broke – but they still take advantage of an overvalued USD. When investors all around the world become aware of the USD marketing trick, the dollar will collapse, and the US economy will be in the worst state of its recent history.

Other indicators don’t offer much more hope: Prices of copper fell to a low not seen since last September. Copper is used extensively in manufacturing, from electronics to construction of homes, so demand for the metal is an indicator of the economy’s health.

Industrial output is shrinking in most countries. Only consumption is still positive, and holds economic growth in positive territory. Meanwhile many countries are in or close to a recession: Australia, Hong Kong, Argentina, South Africa, Germany, Turkey etc.

With the word’s economy on the edge of recession and leveraged to death, a recession is inevitable and is only waiting to be triggered. Like the Lehman event, the coronavirus is not the cause of all problems – it only triggers the obvious.

Coronavirus as Excuse for Everything

The virus outbreak is a welcome excuse for all the latest shortcomings in economic leadership (Trump’s policy errors aka greatest deals ever, excessive quantitative easing by central banks etc.). Central banks will take the coronavirus outbreak as an excuse for more quantitative easing, or not reducing it. Contract partners will declare “force majeure” on contracts (like China will do with the US agriculture products it never intended to buy). The virus will be blamed for all consequences, masking the real causes of the disaster

Philipp Stirnemann - maskiert

Hedge yourself!

Philipp Stirnemann, Chief economist

Bubbles everywhere

The only deal which was very effective was quantitative easing: It was effective in creating a monstrous bubble, and the biggest US deficit in history. Private equity, bond markets, equity markets, real estate markets (Australia, Canada, Germany, Netherlands, Hong Kong etc.), Bitcoin, corporate debt, car loans, student loans. Bubbles, bubbles, bubbles.

Remember the Ketchup Bottle

Masked, also, is the inflation that awaits us. While we already have an inflationary stock boom, it is only a matter of time until this inflation moves from the stock market to the supermarket. A taste of what to expect can be seen in China, with inflation running rampant to 5.4% – a number not seen in over 8 years.

For all the youngsters among us who have never been confronted with the difficult task of pouring the right amount of ketchup on your french fries using a traditional glass bottle, now you have the chance to hear a ketchup analogy from a real ketchup expert (measured on the amount eaten): You hammer the ketchup bottle in to the extent that it improves and diversifies the taste of your french fries. But there is no ketchup coming… there are some physical forces that hinder the ketchup from coming out of the bottle. To achieve an optimal result, you need just a small amount of ketchup – remember, your main dish is french fries, not ketchup. By the time the ketchup finally pops out, there is more of it on your french fries than you ever needed for an improvement in taste. Moreover, removing the ketchup from the fries proves quite difficult – not to mention putting the ketchup back in the bottle.

tomato_ketchup_old

A traditional Ketchup bottle.

Technology does not break analogies

Well, you might argue that technology has meanwhile solved the problem and there are “smart bottles” nowadays which allow dispensing the ketchup more accurately. Have you ever read the Odyssey, Iliad or The Old Testament? – a collection of analogies that survived a thousand years. If you applied new technology to each of those stories, they would seem completely senseless. And that is why you don’t do it.

Inflation is a timeless concept that survived theories like the “New Economy”, “Trumponomics” or something called “bitcoin”. Everything made by man can be destroyed by man (just a side note for those who believe in bitcoin as the new store of purchasing power).

And the current tech boom has nothing to do with the advancement of technology. It is just another bubble.

tomato_ketchup_new

Some say: “This time it’s different”.

Keep your purchasing power

If you want to keep your purchasing power, you need to know how to invest your wealth. Check the periodic table, and choose those elements with the lowest storage and transaction costs. You will end up with gold (79, Au) and silver (47, Ag).


Disclaimer:

I am not trying to sell you any precious metals nor do I give you any advice from the CFA curriculum
(because there is hardly anything positive regarding gold).


There are three take-outs from this article:

  1. The bubble will pop and the coronavirus will be the scapegoat. No one will be guilty. It’s just ‘bad luck’.
  2. Gold and silver are good diversifiers for your portfolio and work as an efficient hedge.
  3. Ketchup can be applied to almost anything.

May the force be with you!