“Next five years is not about winning but surviving.” This is the headline of an article I wrote in early August 2019. At that point I was primarily thinking of economic survival. But now the world is facing multiple threats and multiple failures. As I have already stated, the Coronavirus is not the cause of global market crashes but the catalyst.
But even if I have been totally certain that the world will see an economic collapse greater than any crisis for 100s of years, this is the worst catalyst that anyone could have expected. Yes, a global virus was always one of the potential risks but of all triggers, this one was certainly the most unwelcome and horrible.
CORONAVIRUS IS FAR MORE SERIOUS THAN THE WORLD REALISES
Before I talk about markets and gold further on in this article, I will mention some of the horrific effects that are now hitting the world due to Coronavirus. Just to summarise that my market views haven’t changed. Stocks will go down by at least 90% from here and gold will surge to levels that few can imagine.
How an Economy Grows a...
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No one knows the extent of people affected by the CV. China has never given us the real figures. And the rest of the world hasn’t got a clue where they stand. Every country thinks they are in control of the situation until they panic. Outside of Asia, poor Italy got it first and there we have seen an exponential growth of the number of people affected. And still, in Italy like in most other countries, they haven’t got a clue how many people have been infected.
Same in the UK, US, Sweden, Switzerland, Germany and most other nations. No country has the capacity to test a fraction of the population. You hear from most countries that when people have the symptoms, they are just told to stay home. So the real numbers are certainly 10x greater than reported or much higher. Somebody forecast that 70% of the world will be infected and that doesn’t sound improbable.
DOCTORS AND HOSPITALS HAVE NO CHANCE TO COPE
And as Italy discovered, there is not a fraction of ventilators available that are required to treat the seriously ill. There is on average only 12 critical hospital beds available per 100,000 in the EU. The EU has 500 million people. If the estimate of 70% becoming infected will be correct, that would be 350 million will get CV. Say that 10% need a critical hospital bed. That is 35 million people who would need to share 60,000 critical beds available. I am sure that the US figures for critical beds available are no better but probably much worse. No wonder Italy’s health system has no chance to cope with the situation as we have seen from many reports and nor has any other country.
EUROPE IS SHUTTING DOWN
Any government and health authority just needs to look at Italy to understand how quickly Coronavirus spreads. But every government, including the US and UK, think that they are different and are therefore totally lethargic and irresponsible in their actions to fight the disease. In the winter, I spend time in the Swiss Alps. On Friday the 13th, the Swiss government decided to close all ski resorts and all schools. Many European countries have closed their borders like Poland, Czech Republic, Denmark, Slovakia and Malta.
Italy is totally paralysed with virtually everything closed. Shops, except for food and pharmacies, major part of industry, hotels, restaurants, schools etc. are all closed. I have heard from Italian friends that they are just shutting their businesses since there are no customers. How tragic.
Spain is starting to close a major part of the country including the whole tourist industry. Most European countries are likely to follow although they are too slow to react swiftly. And so is the US who still hasn’t understood how serious the situation is.
If we just take Italy as an example since Corona is more advanced there than in any other country, it is a total disaster for this great nation. Italy has wonderful culture, history, heritage, food and people. But the country was already on its knees before this crisis. The economy is broken and so is the financial system. Much of this is due to the EU. I have difficulties seeing Italy coming out of this intact. But sadly the same thing will happen to Greece, Spain, France, Germany, the US, the UK and most other nations.
SMALL BUSINESSES DON’T EVEN HAVE CASH FOR 2 WEEKS
For a world economy that is totally dependent on credit to the extent of $265 trillion, what is happening is a total disaster. Small business will not have cash to survive for even a couple of weeks. Same with ordinary people. Virtually nobody has any savings, only debt. Many are being laid off already. The airline industry was extremely weak before the crisis. Norwegian Airlines has already made 50% of staff redundant. The tourist industry with its thin margins is collapsing. The same is happening in a great number of industries.
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The banking industry will not survive the next phase but will initially be the beneficiaries of massive global money printing.
MARKETS
What is now happening economically in the world was totally predictable even though the catalyst was not the most obvious one. But what is not obvious for 99.5% of investors is what will happen next. And for most people, it is of course impossible to understand a market that can go down 2,000 points in one day and up 2,000 the next, like the Dow. This is obviously totally illogical and irrational behaviour. With High Frequency Trading and irrational investors creating a lot of this volatility how can we expect markets to behave in a logical manner. And more importantly, with dip buying investors having been supported by central banks for decades, it has been impossible to lose money.
But those days are now over even if after Friday the 13th 2,000 point Dow rally, the false optimism will return for a day or so. Sadly, anyone buying the dips in the current market is going to be burnt for years.
Let me summarise how I see markets in the short and long term.
