Update: I write my blog articles several weeks before they actually posted. Current-event ones like this one I write 4-7 days in advance. The problem is that things are changing daily with the coronavirus. Therefore, I have added several “Updates” in italics to this blog article that I have added on the fly after I initially wrote it. By the way, these Updates have not been reviewed by my proofreaders and may have typos, so if you see any of those, tough shit, I don’t care, and I’m not going to fix them because I’m too busy.
I wish I had better news today.
But I’ll try to end with a positive.
As I’ve been talking about at my other blog, the damage, pain, chaos, and destruction we are all experiencing and will continue to suffer through is not because of the coronavirus, but because of society’s reaction, and in many cases overreaction to the virus.
Individuals and companies are certainly guilty of this. Yet, front and center, the biggest culprit and biggest source of our current and future problems are, of course, our collapsing Western governments, which have done just about everything wrong in handling this crisis and are continuing to make things even worse.
And the billions of people on Earth who will never get the coronavirus will suffer for it.
Government’s incompetent, corrupt, corporatist, socialist responses to this virus is like the extreme radiation treatments that kill the cancer patient who would have survived without it.
There are too many horrible things our governments are doing to report. I’ll just give you the more obvious highlights.
March 11th – Tantrum Trump bans all travel from Europe except those countries where he has golf courses. I’m not kidding. (This guy is president, folks. And a lot of you voted for this corrupt piece of shit. And before you say it, yes, Hillary would have been horrible too. Not relevant.) He does it without warning the EU .
He bungles his announcement so badly that he causes needless mass chaos in European airports as Americans pay up to $20,000 for return flights they don’t even need since it doesn’t apply to them. He crashes the cargo trade market when he says the ban applies to cargo. As usual, his staff freaks out and corrects a bunch of his incorrect statements, saying it won’t apply to cargo and won’t apply to American citizens.
Tantrum Trump then says cargo will not be affected, which is a blatant lie since 75% of air tonnage is on passenger jets . I could go on, but you get the point. Our collapsing country is run by idiots.
March 12th – As I predicted, the Federal Reserve injects $1.5 trillion into the credit market by purchasing repos (repurchase agreements) to prevent its crash. It crashes anyway. Theoretically the $1.5 trillion was supposed to be repaid in 24 hours, but I have not seen any data to verify this yet.
March 15th – Since that didn’t work, the Federal Reserve does the only thing left it can do. It artificially cuts interest rates to zero and then pumps $700 billion of quantitative easing into the markets. As I’ve been railing against at this very blog for years, quantitative easing (or QE) is probably the second biggest reason the USA will collapse in our lifetimes. It basically means creating money out of thin air, which enriches the super-rich at the very top who get the money first, but screws literally everyone else once those dollars circulate into the greater economy and become worth less.
And it won’t work either, not long-term.
Worst of all, the Fed has lifted reserve requirements for the banks. This means that, under certain conditions, American banks no longer need any reserves in order to loan money. That means your bank can now loan out assloads of money with no backup reserves, and if those loans don’t get repaid… well… how comfortable would you be if you had money in that bank?
It’s the stuff that lead up to 2008 all over again.
March 17th – As I predicted at this very blog, Tantrum Trump, (who has always been a fan of big government), and his administration shift to the hard left and start proposing universal basic income (UBI) where they will actually start sending cash to Americans . Our government, the largest government in the history of the world, which already spends $8 trillion per year (state, local, and federal combined) plus is already $23 trillion in debt plus has over $120 trillion in unfunded liabilities plus has a multitrillion-dollar empire all over the world now wants to spend billions, if not trillions of dollars handing out “free” taxpayer cash to everyone, even after reducing the value of that cash due to QE.
Update: Looks like they’re doing it “The Senate bill, unprecedented in its size and scope, would send $1,200 checks to many Americans, create a $367 billion loan program for small businesses, and establish a $500 billion lending fund for industries, cities and states.” They’re going to bail out not only individuals, but mismanaged industries like the airlines, most of whom deserve to go out of business right now. Great.
Regardless of whether or not you think this is a good idea to do right now, this move is either A) very good for America’s future; B) very bad for America’s future; C) won’t affect America’s future at all. I think we all know which it is, even rational left-wingers.
Update: March 20th – The Federal Reserve promises to issue overnight loans to banks at the rate of $1 trillion per day, something that has never before happened in all of human history. Moreover, the Fed purchases $75 billion in Treasuries and $47 billion in mortgage-backed securities in one day. It has committed to buy another $100 billion in the next few days. Compare this to the last time they ran QE in 2012, when it took them an entire month to buy just $45 billion. We’ve never quasi-governmental bailouts/purchases like this before.
Update: Recessions are good. Much of the pain suffered during a recession is necessary. Many companies need to go out of business during a recession. It’s a key part of the capitalist system. The problem is that we don’t have a capitalist system, but a corporatist one, which is far worse, worse even than socialism. If you try to bail everyone out during a recession you simply create bigger and more painful problems that will occur in the future. Read this for more detail. I’ll discuss this more in future articles here.
I said on this blog that if Bernie Sanders got the Democratic nomination (which he did not, the Corporatist Left crushed him by backing a corrupt corporatist who is literally suffering from senility) and ran against Trump that Trump would have to shift to the left in order to beat him. Well, he didn’t need Bernie Sanders to push him to the left after all; the coronavirus did that instead.
Bernie Sanders didn’t even need to win in order to make the USA more socialist.
It’s now entirely possible, and I mean this, that Trump could win re-election on a platform of UBI and/or Medicare For All (something he’s always supported, as he said in numerous debates and interviews in 2016).
Wouldn’t that be nice? That’s not a prediction; I’m just saying it’s distinctly possible.
And the hilarious part is that Trump supporters, the new Trump Left, would still support him.
Okay… I said I would end on a positive.
Pretty much every asset class in the known universe is down right now. Domestic stocks, foreign stocks, bonds, precious metals (though gold is shooting back up now, yay!), commodities, cryptocurrencies, and now, real estate. This is a fantastic buying opportunity, probably one of the best we’ve had in over 30 years.
Real estate, the one I’m watching the most carefully (since I’m planning on buying this year for the first time in years) is the most exciting. Imagine real estate prices down 20% or more while interest rates are at zero. With these two factors combined, 2020 could very well end up being the best time to buy real estate in all of modern American history.
My plan is to buy some real estate in the fourth quarter of this year. I’m hoping interest rates and the real estate market are still extremely low by then. Likely they will be. If so, I’m going to be a very happy boy.
If you were planning on buying a house, condo, or rental property in the next few years, you should accelerate your plans. Real estate millionaires are going to be made in the next several years from moves they make this year.
As always, just because something is bad for society doesn’t necessarily mean it’s bad for you. The Alpha Male 2.0 finds opportunities in both good times and bad. Sometimes the opportunities during bad times are better than the ones in good.
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I work at a coin & bullion shop and can tell you that there is a huge disconnect betwixt spot price (paper markets) and physical price, particularly with silver. Last week, our ask per ounce was running $6 to $8 over spot, and we were selling out of everything.
I agree that there will end up being good buys in real estate, but I think you can afford to wait beyond Q4 2020. Not only are homes going to be shook loose from weak hands, but there are a lot of boomers that are gonna croak.
Most of the investment opportunities especially for small investor are via a broker on some brokerage account. I am not sure if its safe to keep a lot of money with some broker right now though. But perhaps its good to spread out a bit. I have started spreading out money across bank accounts in various countries and currencies a bit but otherwise I am mostly holding onto cash for the moment.
Would you say that millionaires will also be minted over the next few years from people in invest in a diverse portfolio of domestic/foreign stocks, precious metals, and cryptocurrencies?
Given these numbers, the US is destined to follow the path of Venezuela. This will work for a short period, the United States may be okay in the midterm, and the country is headed for a painful hyperinflation scenario in the next 15-20 years. I’ve noticed this pattern with countries that turn socialist; they are economically prosperous for a short 3-5 year period, slowly economically degrade over the following 5-10 years, and by around the 15-20 mark are economically fucked by hyperinflation.
As for Trump, he is basically a modern-day version of Julius Caesar of ancient Rome. Provided he gets reelected for another term he will, just like Caesar, pass many draconian left-wing laws like the Senate Coronavirus bill (Caesar passed laws rewarding families that had lots of children and eliminated debts owed).
My generation (the Millennials) has constructed a (not so) endearing nickname for the coronavirus as the Boomer Remover. I’m thinking the virus will end up killing less Boomers than the economic calamity that is following (I predict a sharp rise in the number of suicides among financially struggling seniors in the coming months). In a way this economic shockwave will be an opportunity for more financially solvent Millennials to own their first home.
Yes. The price of silver is being suppressed even more than gold. Has been for several years now.
I could buy in Q1 2021, but we’ll see. That’s the problem with real estate: “If you wait 3-6 more months you’ll get an even better deal!” but that’s almost always the case in markets like this. Eventually you’ve got to pull the damn trigger.
Not really. You may make money doing this but I don’t think you’ll make millions (barring the rare exception to the rule).
The millions will be made from the two places they’re usually made: real estate and business.
Possible, yes. I examined that here.
I agree but I think that would be true of Biden also (or whomever pulls his strings since the bastard can’t even speak correctly). Government in general is going to take advantage of this crisis and pass more authoritarian laws, just like they did with the Patriot Act after 9/11, passed by Bush and gleefully expanded by Obama. And most Americans will just shrug and go along with it.
Not sure. Perhaps.
I’m doubling down on my guess that the USA (and the rest of the West) just lost 10 years because of all this. If the USA was going to collapse in 30 years, now it will be 20 (if it was 20, now it’s 10, if it was 40, now it’s 30, etc).
I think we will definitely see a housing market correction in the 2nd half of the year. You’ll start seeing more people default on their loans and homes foreclosed. At the very least, many older folks who are hanging onto their big houses will have to radically downsize so you’ll see a big uptick in supply. Honestly I’ve been waiting for this-not the way I wanted to get there but , here we are. Real estate has been way overpriced for years now and I’ve sat on the sidelines waiting for the deals.
This whole stimulus package reeks of 2007-2008 all over again. In regards to these small business loans, how exactly are they gonna pay it back? Some of these places barely have a month’s worth of cash to get by so this little infusion will just buy them another month or 2. What then? If they still aren’t making any or little revenue, they’re still fucked and then default on the loan. It’s a very “make it to friday” attitude but long term will not work. Sadly, I know some people that have small businesses which are probably going under after all this. Any sense of normalcy will take some time-it’s not like this will al lift overnight and income will start right back up for them quickly.
Thanks again Caleb for being one of the few rational and calm voices during this time.
Since this is a global event – how have those “safe haven” places been doing? Been hit, but not as hard..?
(Your post on South East Asia, do you think that still holds up after the dust settles with this viral thing?)
What’s your estimate on a currency crisis happening in North America in the coming months?
Do you think places that are not committing economic suicide over this outbreak (South Korea, Taiwan etc) are gonna do good in the next few year?
Stopping the global economy just so that boomers can survive a few more years. YAY
Coincidentally, I was watching The Big Short yesterday. The words of Carell’s character at the end were haunting:
“They knew the taxpayer’s would just bail them out. They weren’t being stupid, they just didn’t care.”
You’re very welcome.
Everyone on the planet has been hit, but some less hard than others. Yes, the places I’ve been watching have been hit less hard. (Shit, just about everyone has been hit less hard than the USA or Europe.)
Not only will Asia hold up, but Asia will emerge from this stronger. Most (though not all) Asian countries have handled this crisis correctly while Western nations have been bumbling idiots and have made it worse. The damage caused to the West will dwarf the damage caused to the East. Therefore the relative economic strength of the East in 3-10 years will be even greater now because of this problem than it would have been without it.
This entire thing has just made all of my plans not only more viable, but more profitable in the long-term. As tragic as this all is (and it really is), I could almost not have asked for a better scenario for my particular international plans over the next 3 years (other than a possible dip in income over the next few months, which is fine, I’ve got plenty of money in savings, and the profits I’ll make on the upswing will more than account).
Our suicidal governments will print all the money out of thin air they need to prevent anything horrible happening to the currency over the next few months.
It’s the next few years/decades where the big problems will occur.
This year, probably not. Over the next few years, yes.
Boomers control the world so no one should be surprised.
I just found out they’ve handed the Fed $425 billion which can be used to issue $4.25 TRILLION (10x reserve) to anyone they want (i.e. big banks and big corporations) with almost no oversight (literally 5 people on the panel), and the taxpayers will fund any losses.
That movie was right, they’re not being dumb, they’re being very smart. Evil, corrupt, selfish, and destructive, but smart.
As has been said, fear is more contagious than Covid 19.
I believe the economy of the USA is much more than what the fed does and more than what a president does or doesn’t do.
As long as people are free to do business I believe the USA will be fine for a very long time to come.
I’ve been lucky enough to have been surrounded by successful self made millionaires my whole life. Brother, cousins, friends, brother in laws etc etc. I’ve seen some of them make mistakes they regret that may have temporarily impacted them but one thing I’ve noticed is that recessions and other things that the masses have been impacted by never really had any major effect on any of them for the most part.
There are a lot of very smart people in this country. And with the rise of the internet, more and more people have the opportunity to learn and self educate.
In addition, the culture here has gotten use to a certain level of material comfort. A virus and/or recession isn’t gonna change that. People will find a way to make it.
In fact I will go as far as to say that this may be just what this country needed. There are a lot of young people who needed to be toughened up. There are a lot of young people who are very smart and capable but don’t know what it’s like to be hungry or experience hardships. So this might just be exactly what they needed.
If someone is hungry for success in this country in this day and age and they really apply themselves, they have a higher chance of success than ever before imo. Maybe not with the first thing they try to succeed at, but if they’re hungry enough and keep at it there are just so many ways to achieve high levels of success these days. Easier than ever before in history IMO.
Once a certain level of success is achieved, I do believe it’s wise to have options in terms of leaving the country for whatever reason may come up however I believe that the US will be fine for them most part for a very long time to come.
With that said, it’s far from perfect. And there’s a lot going on in this country that’s fucked up. But luckily we have people like Caleb who come up with brilliant ways to adapt and make the best of some of the BS that’s going on with our society and things that make things more challenging for men.
Anyway, that’s my opinion.
BD, I think some of the reasoning behind the efforts to inject cash into the economy is to try to stave off deflation. The “shelter in place” orders and other responses to the epidemic are likely to cause a sudden and sharp decrease in demand in a broad number of sectors in the economy, which is the classic macroeconomic setup for deflation.
Deflation can be economically catastrophic because it sets up a cycle of further decrease in demand due to the future expectations it creates (why buy a good today that will be cheaper tomorrow, if you can afford to wait?). The Fed will typically respond to deflationary pressures very vigorously, since there is a fairly widespread belief that the failure to adequately manage deflationary pressures in the 1930s contributed substantially to the depth and duration of the Great Depression and that it was the massive economic stimulus provided by government expenditures needed to fight WW2 that finally pulled us out.
There is plenty to quibble about with respect to monetary policy, but the idea that it’s important to do whatever possible to stave off deflation does not seem irrational to me.
That probably happened to my dad. Got radiation treatment for his stomach cancer, it moved to his lungs right after. Died WEEKS after 🙁
I do have money in such a bank, and willing to bet that you do as well. And yes, I’m completely comfortable and won’t be moving it to my mattress anytime soon. Because bank reserves don’t work the way you think they do. And they do not work the way that the “money multiplier” model of Econ 101 teaches either. Plenty of countries have long had zero reserve requirements … Canada, Australia, the UK, Hong Kong …. and it is not a problem for them. Probably need to move on to Econ 102 or 103 to understand why 😉
Well, here you’re implicitly assuming the money multiplier model with a reserve requirement of 10 percent. But you just finished saying in your post that the reserve requirement had been cut to zero, so you’re not even being self-consistent. So even if they “handed the Fed” just one dollar, it could be used to issue an infinite amount of money if you really believe that’s how things work ;).
I’ve got a decent pot of cash in my bank account and I will try and wait for the right moment to buy property in cash, buying something that requires a refurb and then conduct the refurb to increase the value. Then rent it out.
I have never bought during a recession before.
Do you believe we should wait until we start seeing headlines in the newpapers about house prices falls and wait until we see confirmed transactions being bought at lower prices? In UK we can check sold prices online for free. So wait until in hits rock bottom , how do you know when that is?
I assume that real estate is the last to get hit, so there is a time lag on it? Businesses fail, stocks go down, unemployment etc and then property gets affected about 6 months later?
what are your top tips for buying real estate in a recession?
Ideally you should already have picked your location and exactly what type of property you want. Then you’d know what the prices are there, including the historic prices and comps. Now, just watch those prices very carefully. When/if they drop buy a lot (20% or more), buy.
Just the absolute bare minimum to conduct daily business that I wouldn’t mind losing, and no more, mostly because I have no other easy options (though that will soon change). As I’ve said many times, no one should have any serious, long-term money in an American bank.
Incorrect. In one instance I was referring to any and all private banks and the other I was referring to the Fed (and perhaps the few big banks attached to it). You need to quote me correctly if you want to disagree with me.
I know. I’ve discussed deflation many times at this blog, including here and here.
I know, and these responses cause massive future damage that we don’t feel today.
So should we put your children to death if it was guaranteed to stave off deflation? I think you’d say no. Therefore this “whatever possible” thinking is insanity and indeed irrational.
If the USA was a prosperous, booming economy with massive amounts of cash and gold reserves, very low governmental and consumer debt, a massively growing middle class, and no bubbles in the stock market, bond market, or real estate markets, then printing up trillions of dollars that don’t exist to stave off deflation (or any other big problem) might be okay. But that’s not the case here. What we’re doing, specifically under the conditions we’re doing it, is deeply irrational (or evil, depending on your point of view) and will destroy the USA. It won’t destroy it today, but it will later.
As the saying goes, when you’re hanging on the cliff by your fingernails you don’t go waving your arms around. And it doesn’t matter if you have a “good reason” to do so.
Caleb, on the BlackDragon blog, you spoke a little bit about gold prices falling at the beginning of a recession and/or major stock market decline and then spiking later. Over the years, I’ve read some of the gold bug books, all about the weaknesses of fiat currencies and the artificially high value of the US dollar. Some great doomsday stuff! I just think that some of the books put too much confidence in an imminent collapse. But this incredibly reckless printing of money in the US (and presumably most of Europe) is sounding warning bells — it feels like it could easily trigger the collapse of the dollar.
What’s your opinion on that?
And can you give me your ideas on the thing about this:
I already explained that in the other thread. Gold drops at the start of a recession due to leveraged investors selling it to pay their margin calls, but after that, the price of gold usually spikes beyond where it was before the recession began. That’s exactly what happened in the recession of 2008 and the recession of 2000/2001 and both times I made money with gold.
And to be clear, no one can tell the future and I could be wrong.
Thank you Caleb, your writing is one of the few outlets for intelligent and objective information.
You’ve spoke about how the most likely scenario contributing to the Western collapse would be a currency crisis of the US dollar. Given everything that’s happening, would you say that things have really accelerated in that particular direction? Is USD still king before this hyperinflation destroys it, which I’m guessing would be right around the corner because of all these bailouts and stimulus. I guess what I’m asking is as of right now is the dollar a “hot potato” in a sense that should be immediately dispersed of right away into an invest(s) OR instead buy as much gold/silver as you possibly can and get rid of most of your liquid dollars?
Honestly, I have 20k in dollars and I’m uncertain where I want to put it where it will be safe and grow.
I think it’s more accurate to say the the odds of it occurring have increased. Yes.
US Dollars are fine at the moment. During world-wide crises, the US Dollar actually increases in value a little for a while because all the idiots in the world think the US Dollar is a safe currency, which it is not. So in the short and medium term owning Dollars is fine (I have a shitload of them).
The best play in my opinion right now is to have both; gold and Dollars. Over time though, yeah, you’ll want to shed your Dollars, but you don’t have to right now, or even this year.
That’s good to know that you think there’s still time. Perhaps what I’ll do as per our exchange in the comments from one of your last posts on the Blackdragon blog, is when/if the Dow drops to 17k invest in a bunch of indexes and then when it goes back up to 23/24 sell all those indexes and cash out, use that money to buy a bunch of gold! How long that will take for the market to rise is the unknown. Hopefully time is on our side to do all of this and it works out. I’m new to this so it’s all pretty scary. But does that sound like a good plan? Or it should really be one or the other given the status of things.
One other thought.. you’ve talked about how China was buying up shitloads of gold and would someday surpass the US in world domination. Generally I’m no conspiracy theorist (nor a virologist!) but do you have any thoughts on if this was in some warped way a planned event on their part designed to shake the world, even sacrificing a large portion of their own population for the sake of disrupting the global financial market. When all this started getting out of hand, my thoughts kept going to those articles of yours on China!
“Never attribute to malice what can be more easily explained by simple stupidity and lack of foresight.”
Caleb what do you think about Ronald Reagan presidency?
And what decade the USAs slow collapse started?
Please don’t do what I said I would do in that other thread if you’re “scared” and “new to all of this.” That’s not the way to invest. Speculation is for confident and advanced investors who have zero debt and a lot of money in savings as a cushion Just relax and keep your money in cash for the time being. And read this and this.
No. Making everyone in the world resent China like they do right now would not be a good plan for China.
Governments are incompetent.
How quickly people forget that.
I am against any president who makes government bigger regardless of which side they’re on, because I’m objective and rational. Therefore I disagree with most of the Reagan presidency.
The 1990s is when it started and it truly activated in the early 2000s under George W. Bush.