Some readers might accuse us of being alarmist and rattling the cages unnecessarily at a time of public panic, but we’ve always felt that investors should hear a range of perspectives, especially if some of it is uncomfortable. Those who don’t like having their assumptions questions – like, for example the ‘assumption’ that economic growth will come ‘roaring back’ after this is all over, like Mnuchin promised on Wednesday – should probably turn back now.
As many analysts have argued, a recession is looking virtually inevitable at this point as the global economy shuts down to fight the novel coronavirus.
Only a handful have dared to invoke “the ‘D’ word” in their projections. But their ranks include Allianz Chief Economist Mohammad El-Erian, who has warned that a depression could swiftly ensue due to the twin “economic deleveraging” and “financial deleveraging” caused by the crisis.
That is, not only is economic activity falling off a cliff, forcing many businesses around the world to temporarily close or dramatically cut back their hours, risking a string of destabilizing main street bankruptcies. But the pressure on financial markets risks creating a ‘cascading’ selloff in the corporate debt market as America’s seriously overlevered companies finally face their reckoning.
During an interview on CNBC early Wednesday morning, El-Erian – who has correctly called the moves in the market so far – said that “when economic deleveraging and financial delveraging” happen in unison, the possibilities are endless, and almost hopelessly dire.
For more on what a financial deleveraging might look like, read this.
“It makes its own dynamics,” he said.
Looking ahead, El-Erian believes the market will lead the real economy (as zero interest rates appear to be a permanent fixture of monetary policy now) down, but he predicted that stocks would likely bounce back before the market does.
“Once again, financial markets will turn before the real economy…when that turn happens, it will be very sharp…you will get a ‘v’ like tendencies in stocks…while the economy will be a ‘u’ that feels more like an ‘l’.”
“Yes the financial markets will turn first, but will do so in a violent
As El-Erian has been saying for weeks, “investors should be careful what happens when you get a global economic sudden stop.” Looking ahead, El-Erian said, not only might be face a “very sharp” recession, but things could get so bad that a full-blown depression might ensue.
“Not only are we looking at a very sharp recession…we may have a depression…it’s very important to understand what happens when economic and financial deleveraging come together,” El-Erian said.
Of course, the Allianz economist isn’t the only one talking about the risks of a devastating economic depression the likes of which hasn’t been seen in the US and the developed world for nearly a century.
He’s joined by Joachim Fels, PIMCO’s global economic advisor (PIMCO is majority owned by Allianz).
And even more notoriously, hedge fund investor Bill Ackman warned about ‘hell to come’ (also during a conversation with CNBC) that the risk of a depression, adding that “the US Treasury doesn’t have enough money to bailout every company…you can’t borrow your way out of this…you have to kill the virus.”
Circling back to Fels, PIMCO’s global economic advisor, said in a written commentary that central banks and governments must step up to the task of making sure this recession “stays relatively short-lived and doesn’t morph into an economic depression.”
Fels loosely defined a depression as “a combination of a prolonged slump of activity that last longer than just a few quarters, a very significantly rise in unemployment, and mass business bankruptcies and bank failures.”
How would we define a ‘Depression’? Well, Mnuchin’s description was clearly enough to light a fire under the asses of intransigent GOP senators.
If Mnuchin’s warnings eventually do come to pass, here’s a glimpse of what we suspect a full-blown recession would look like in the US.
First, without government action, the unemployment rate would likely soar above 20%.
As history shows, things can get pretty scary during a depression.
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Very few people see this for the opportunity it presents.
Now would be a great time for people to reevaluate the system they’ve been living in- what it promises versus what it delivers- and measure it against the kind of life you would ideally wish you were living.
It’s been wrong for so long we came to think of it as normal.
Anyone can do it- living outside of an abnormal cultural paradigm is possible. It’s much easier than you can imagine and it requires far less economically than anyone would believe until you find yourself living this way.
Everything about the world before this virus was fake. The entire monetary system, the economic policies, the corporate slavery employed to make it run- every last bit of it was false, corrupt, degenerate and anti-human. Rejoice in it’s demise, don’t try to do whatever you can to bring it back to life. Let it go. There is a better way.
I’m taking bets that within a decade of a hard crash, the sheep will be ready to play in the rigged casino again, AFTER TPTB assure everyone they have put a plan in place “So It Will Never Happen Again”. Donkey stated he was going back in when the market craters or at least considering it and I’m sure he is not alone.
Will the banks and Wall Street be blamed this time or will it all just be an unfortunate outcome of a GLOBAL PANDEMIC?
Donkey asked about investments and I suggested a great buy on the building that shares space with my taxidermist. He has that huge room full of mounted buckskins… soft pelts are the ones you might wrap a baby bumpkin in.
This is some of the creepiest animation you could imagine.
I love the idea of running to the Ozarks. A true dream of 40 acres and 5 dogs roughing it in a 3 room cabin. I need income. How do I pay taxes without income?
M G, any 50ish ladies looking for a good man out there?
Donkey.
If you have your own testosterone there are lots of 40 and 50 sumthins out there. Quality will be the issue. Choose carefully because you will be in demand.
Flea, James Brown is going to come full circle over the next decade. Middle-aged men will again be filet mignon after an economic culling, which is the natural order of things. Romeo and Juliet was a freak show and NOT the historical norm by any means.
Flea,
That wasn’t a shot was it? Mags suggested, a couple weeks ago, I consider purchasing 9 acres near her. I live a long way from there with no connections. I would consider Mags playing matchmaker. It could save me a lot of time. A good thing for a 50 something.
Donkey.
No I was just kidding. A few years ago when the Pacific NW was on fire and smoke in the valleys was impossible to see through. They scraped me off the sidewalk and after 3 days in ICU the only bed available to recover was in an assisted living complex. When I walked into the dining hall under my own power that evening I was never so scared in my life.
One more thing, when I was a 50 sumthin the 30 sumthin field was wide open but boy are they damaged goods.
I didn’t think so, thought I would check.
Yeah, second hand can be tricky.
A Realtor client of mine told me something I thought was kind of funny the other day.
A girl wants to be the 1st girlfriend, the 2nd wife and the 3rd Realtor.
90%, I’d bet, of the working stiffs in America rely on 401ks and home equity to retire. Take away the 401k and what do you have? Now, what is going to happen to housing if we hit depression?
Who cares if it’s sitting on productive arable land with timber, on a hill, defensible, 30 minutes from a mid-size city on the economic rise?
Pay it off early and you may not be a king, but you’ll be a prince.
AOC
If someone is crazy enough to give fixed payments in US dollars, take it. Next year when we are using Zimbabwe bucks pay it off in one easy payment.
Exactly!
As I said longagoandfaraway (and can document, date and prove it with a picture… you realize, don’t you?), “You, sir, are a scholar and a gentleman.”
Now, I’m having my meeting at my intersection and we’ll send someone across the river to negotiate crossing privileges. That’s that big U.S. Marine sign that was behind a coonskin shot nobody wanted to see except one guy who needed to know.
I am having a hard time not seeing the silver lining in this. It illustrates clearly everything that was wrong with our system from the JIT systems to the abject failure of the gigantic institutions (CDC/WHO/NIH) in not only responding to a crisis, but in recognizing one while it occurs.
But, there really are none so blind as those who will cannot see the Signs because of the Dollar Signs. Except for those so biased they will not even look at the message. Even if the message contains a can of magic beans.
So, while dropping off the stores into that warehouse, I retrieved my hidden cache of treasure from the estate. I never went there since his death. I swore I’d been there the last time the last time I was there. I got permission to return there today. In a profound way.
I also grabbed the master copy of those old hand-drawn maps my Dad made all those years ago. Just-In-Case the phones quit working. And dammit, I’ve been putting off the ham radio thing but do you know what???? I’ve got a freaking U.S. Marine in his compound down the road. I think I’ll let him handle the base transmitter and Nick and I will carry the hand radios on MURS preset and agreed-upon frequencies and schedules.
Logistics. Have it ready.
What happens if some electronic event happens. Do you carry, as I do, an ammo can in your vehicle to put your phone in, just in case?
We’ve become a Just-In-Case society. Someone should write that essay.
Get this… do you want to know what I discovered in my Aunt Martha’s old writings? (which pushed themselves through like those proverbial pennies from heaven) I think you might have seen some of her oil-toned calligraphy. She’s the one who taught me that words in a picture send a lot more of a message than just a bunch of letters lined up to look like something. She is a bonafide weirdo who once told me that she didn’t like to be around a crowd of people because they all start thinking such nasty things about each other it made her stomach hurt.
Like TBP.
I suggested they re-segregate the beans but they got all the Pintos too so they will just have to decide how they plan to put someone to counting the beans. I am not in charge of the distribution, just logistics.
However, I’m just a dumb hick from podunk, but I am also a daughter of guy named Joseph. Something about visiting the grave of one’s ancestors and one’s mother all in the same day. HSF? I filmed it.
And she loved it! If you think I’m a camera ham? You should meet my mother. Perhaps, in a way, in a video perhaps… you will. I will share it with you privately if it is worth sharing. It is the queen on her throne with her adoring subjects before her receiving her blessing. I am the youngest.
Do you see what I did there? If you didn’t, ask my big Pyrenese Jacob, pre-ladder wrestling which, by the way, I hope your son does with a safety strap, as my hardworking husband does?
By the way… here’s a brain teaser for you and I bet you know it without looking, but I want to ask rather than tell.
“If all the successful men have women standing behind them nagging them about what they did wrong do you think the unsuccessful ones have women standing there telling them how smart they are in sycophantic tones?”
HsF: I can agree with everything you are describing. The problem with all this, in my opinion, is there are so many facets to this issue a person is easily overwhelmed. Until this whole economy caves in or is destroyed things will not change. The sad part is the carpet bagging turds that created this mess through passing statutes, to serve themselves, will return and repeat the cycle. To sum it up, I feel the human race is in a perpetual state of being screwed. To be crude, sometimes they do you dry, sometimes they use lube, sometimes they wear a condom, sometimes they don’t. The end result is always the same. It is sad to say it always seems to boil down to prey and predator.
My very best friend growing up retired at 38. Between graduation and 38 he was working 12-15 hour days every day of the week. Initially for someone else, then for himself as he started and ran various small businesses. He made a lot of money and had a trophy wife.
Then one day she filed for divorce. The stress from working insane hours and knowing he was about to get taken to the cleaners by her lawyer sent him to the ER because he thought he was having a heart attack. He wasn’t, but he resolved to change his lifestyle. Within 6 months he liquidated everything and wrote her a check. He was free!
Now he pretty much does what he wants, lots of hunting, fishing, and occasionally some travel around the US with his beagle in the passenger seat of his truck. For $ he buys repos for cash, living in them while he fixes them or does odd jobs as fits his schedule.
His words of wisdom to me were, “People don’t realize how little money it actually takes to live. Once you quit giving a fuck what the Jones think and have no debt it really doesn’t take that much and you are much happier not chasing something you will never catch”
Yup! Your friend has his zero’s dialed in.
HSF,
Please write a book on how to do it? Can I become a farmhand? I’d be willing to learn anything but not sure I could slaughter.
Donkey, slaughtering is part of the whole unless you are willing to trade something for avoiding it.
I never say no to a helping hand, if you are ever interested in trying it out.
And slaughter is never easy, but it’s nowhere near as difficult as you imagine it might be.
For some odd reason, that brought a tear to me eyes.
I’m an optimist but also a realist.
Anytime would be a great time for people to reevaluate the system they’ve been living in.
But such will surely not happen in a time of panic.
It could happen in the eerie quiet after the dust settles – but the TPTB will make sure exactly no such long quiet ever occurs, by throwing the next contrived or self-created chaos at the people, exactly so they never find the time to calmly reevaluate.
I really do love your posts, sir. So what I discussed with my wife last night was thus.
I have my trees planted 15 x 20 (in-row x between-row spacing), with each mound ~8 x 8. I talked to one of the local arborists today about a mass dump effort over the next week or so, and using that mulch as the foundation in between each tree. What I’d like to do is give each of these ~12 x 8 spots (mounds have slope, ergo taper them off from 15 to ~12) to a family to grow whatever they want, after I lay the mulch and tell them to source the soil.
That’s not a bad idea, right? I think it’d allow the kids (and adults) to learn about growing stuff and to rebuild a small community.
I still have 19 more mounds to build and I use 3 yards of mulch per mound the first go-around. But that still leaves me with about 106 mounds or so to do this.
This is not going to lead to a depression. By November we will have finished the transition from Oligarchy to Feudalistic Communism. This state we are in this week is the good news. Calcutta India, Dhaka Bangladesh, Nairobi Kenya, will be the new norm by this time next year but we’ll have 5G. I won’t bring up the religious future because it incites too much Dgue loving emotion and fantasy. Just remember that all 50 states have legalized Noahide law.
Another mind blower. So much for a Christian nation.
It’s me. SeeBee
This event, and the reaction to it, only make sense if the following were true:
“you catch the virus, and feel no symptoms, you live for 30 days, and spread the virus, and then get deathly sick after 30 days, and drop dead on your feet, as your lungs fill with fluid on the last few days of your life”
now, of course, if that was the case, you could understand why governments would panicking, and it might explain the creepy vids that came out of china before the censored everything.
on the other hand, the response to this virus is like a script written by NWO flunkies:
“we stop the the evil monster US has become, with it’s economic warfare on everyone, by destroying the US dollar, and then we can replace it with a globally accepted replacement of digital currency units”
Either this is the walking dead virus, that has to be stopped,
or
it is yet another globalist plan to get rid of a pesky nationalist president, and implement a new economic order based on a different monetary unit/system, a regular phoenix rising from the ashes.
and I’m sorry, but there is no path back to an agrarian society, there is not enough land for 8 billion people to be productive, this would require: 4 billion rakes, hoes, shovels, 2 billion horses with plows, 1/2 the land set aside for live stock feed and production, 250 billion packs of heirloom tomato seeds.
This then requires factories to produce the rakes, hoes, shovels and seek packs, which brings us straight back to where we are now, in 20 years.
Here’s a scenario that doesn’t dwell on blame. Shit happens and it’s up to you to navigate a course that will save you and your family. The speed of the virus spread is certainly surprising, but most of us doom and gloom types here knew that “what is,” was not going to last. We were aware of the debt, the corruption and the insanity that was and is still thought of as normal. No one, even the thinkers here, knows the future. Some of us saw this coming so long ago that those around us just rolled their eyes if we mentioned it. My Honey, bless her, did not encourage my rants, but neither did she disagree. Two years ago, we jettisoned all debt, cashed up and added to assets purchased in 07. We moved to a small town (pop. <200) in the middle of the country. They roll the sidewalk and streets up here in the evening. My grown children know the score and know that they are welcome here. It will be a tighter living arrangement, but shit does happen and we'll get on with life. Corn is still king here and my wood-fired still will get fired up soon, making a smooth and aged hand sanitizer and other things. HF is expressing optimism, and he sees a way forward. Time will tell.
“and I’m sorry, but there is no path back to an agrarian society, there is not enough land for 8 billion people to be productive, this would require: 4 billion rakes, hoes, shovels, 2 billion horses with plows, 1/2 the land set aside for live stock feed and production, 250 billion packs of heirloom tomato seeds.”
I’m guessing you don’t live an agrarian lifestyle?
Here’s a well kept secret, we are an agrarian society. We pretend we aren’t because no one participates in it except to eat, which they do every single day. There are only two kinds of societies, agrarian or hunter/gatherer. We pretend we live in the information age or that the one before it was the industrial age, but that’s just pretend to make people feel like we’ve come further than we have. Everything we do, everything we’ve made, invented, composed, modified, tweaked or refined has been made on the backs of the agrarians that feed then, like babies. The Jetsons fantasy of just taking a pill never happened and it never will. People are still going to eat eggs and fish, salads and steaks and the only way to get that is agrarian practices.
I think what you’re trying to say isn’t that there isn’t enough land for 8 billion- clearly it’s more than enough- but rather that no one is interested in participating in it beyond the chewing and digesting part. People are spoiled, childlike, dependent and lazy but that’s about to change. The fake world just got the curtain pulled back on it and there’s nothing back there but a bunch of computer terminals and empty Starbucks cups. People get hungry enough, they’re going to remember where food comes from.
I guess we’ll see.
HFC
Right. People we’re lulled into the chewing and digesting farce by Agribusiness at tremendous cost. It’s the least efficient for all but most efficient for the Banksters.
HSF, what you write is music to my ears. There is one key element at risk. Property Rights. In a land of eminent domain, my brother’s keeper, what yours is mine, tax, tax, tax and for the greater good, what you think is yours today, may belong to Uncle Sam tomorrow.
But the idea of independent, healthy, thriving, self sufficient individuals is one of beauty.
One thing I noticed in El-Erian’s comments is that he fails to say who it is that is going to be buying the assets that is going to end deleveraging spur the recovery. With half the country out of work, and their only reprieve being $1000 which will hold most people for about a week, I do not see the possibility of too many people feeling the need to buy stocks. Businesses are going to be focused on trying to survive, and most who will are going to be going into debt to do so. I do not see anyone doing any stock buy backs when they are being blamed for their insolvency to begin with. The Fed is busy trying to keep it’s member banks afloat, even if they try something I doubt it will be on a scale large enough to be more than a token. The government is already under fire for bailing out corporations and not doing enough for citizens. I can not imagine any politician risking the wrath of the public to support a program to bail out Wall St.
This is not 2008, and the actions taken in 2008 are now going to make this crisis even worse. They inflated the bubble beyond all reason, and now it has popped. Asset deflation and the default of debt will not be able to be stopped until it has run it’s course.
“I can not imagine any politician risking the wrath of the public to support a program to bail out Wall St.”
The Public is anesthetized. And Politicians could care less about the public. I truly wish that weren’t true. But those are the facts.