Market Insights

This Time IS Different

Gold Alliance disclaimer

One of the questions on every investor’s mind right now is when will our economy and markets recover. Will it be a V-shaped recovery (months), a U-shaped recovery (about a year), or maybe an awful L-shaped recovery (several years). Based on your own assessment of where we are going, you need to make decisions. If it’s a quick recovery, your financial positions should remain as they are because markets will rebound quickly. For longer corrections, with potential inflation due to the massive money printing by central bankers, you should take actions to adjust and protect your portfolio accordingly.

In this article, I’ll show you various opinions on the topic of our recovery, from our own Federal Reserve, institutional market players, and financial analysts. There seems to be a consensus that “This time IS different,” if I may borrow the term used by one of the analysts. The lockdown accompanying the complete pause of our economy and the massive unemployment numbers we are seeing are vastly different than previous market corrections. They more closely resemble the toughest times in our financial history during the Great Depression or the 1970s, meaning a collapse of stock and bond markets, real estate, and other financial assets.

Here are prominent articles that appeared this week. They should give you a good view of where we may be headed.

We’ll start with our own Fed chair, Jerome Powell. In spite of the Fed’s support of the market with money printing “to infinity” accompanied by heavy fiscal stimulus packages by our government, Powell stated this week that we should “BRACE for a bumpy recovery” (read here).

The Dow tumbles 500 points as Federal Reserve says bumpy road ahead

But when Powell claims it will be bumpy, the question is what is “bumpy”? And how “bumpy” will it be? A possible good answer to that is given by James Rickards, a prominent financial author, economist, and investment banker. This week, Rickards claims that the resurgence of coronavirus cases in countries that we thought had put it behind them—like Singapore, Japan, and South Korea—is showing the pandemic has a long way to go. Right now, he claims, the collapse looks to be worse than 2008’s financial crisis, 2000’s bubble, and any other time of panic in our history. The only correct frame of reference is the 1929 Great Depression, when the stock market fell 90% and unemployment hit 24% over 3 years. This time IS different, according to Rickards, because the unemployment numbers have reached similar numbers within weeks. His full article is here.

According to a recent report from Oxford Economics, the housing market will be in trouble as well. The report states that 15% of homeowners won’t be able to make their monthly mortgage payments. If this holds true, the number of delinquencies will surpass the Great Recession’s and cause housing prices to plummet, especially as both buyers and sellers are not too happy to meet in close quarters.

Housing Bubble 2.0 is going to burst, as the next big shoe to drop for the US economy.

You can read about Housing Bubble 2.0 here.

Those of us concerned about the safety of our retirement savings need to pay special attention to two legendary billionaire investors who this week explained how the current markets are historically frothy and risky.

Billionaire Tepper says stock market is the most overvalued in history and invest in gold.

Read Tepper’s detailed comments here.

Billionaire investor Druckenmiller says risk-reward of investing in stocks has never been worse

Read Druckenmiller’s full comments here.

If you were born more than three decades ago, you have already experienced that we all go through cycles of good times and bad times. When times are good, they can be really good. And the same goes for when times are bad. Today, with the unprecedented lockdowns and exploding unemployment numbers, you should take our Fed chair’s advice and “brace” for a severe downturn in our economy, in the value of financial assets, and in real estate.

I wish you and your loved ones all the best during these trying times.