Two major asset classes are major beneficiaries of the unlimited money printing and credit creation that is now taking place globally. One of them will end in tears and the other one has just started a major secular bull market.
As the world economy and financial system is disintegrating, investors are under the illusion that all is well with many stock markets still not far from their all time bubble highs.
THE DISCONNECT BETWEEN STOCK AND THE REAL ECONOMY CONTINUES
Many companies and services are haemorrhaging cash and are not going to recover for years and some never. As very few people are travelling, many airlines, cruise lines, hotels and restaurants for example will not survive. This is a global industry that employs 330 million people and represents 10% of global GDP. International tourism could fall as much as 60-80% in 2020 according to some estimates. The car industry is 3% of global GDP and is expected to drop 25% in 2020.
Real and hidden unemployment is a major problem and if furlough or social benefits are stopped many people will not survive. As many can’t pay their rents they will also become homeless.
Currently 31 million Americans are on some kind of unemployment benefits. That is 20% of all workers.
But if we include workers who are not receiving any benefits the total unemployment is 30% according to Shadow Government Statistics. This is worse than in the 1930s depression.
DREAMLAND STOCK INVESTORS IGNORE DEFICITS
Stocks market investors still live in dreamland and translate all the bad news to good news as the continuous flood of printed money and credit inject liquidity. This has always worked before so why won’t it this time? No one knows what the US deficit will be at the end of calendar 2020 but it could easily be $10 trillion as the debt grows to over $30t and on to $40 trillion within a year or two.
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BoJ governor Haruhiko Kuroda Photo credit: Toru Hanai / Reuters
