The Coronavirus Triggers The Long Overdue Global Recession

The coronavirus triggers global recession

Last week, the stock market suffered its largest weekly loss, it looks like the Coronavirus The Long Overdue Triggers Global Recession, since the 2008 financial crisis amid worries that one of the largest economic expansions in history may be coming to an end. Many analysts blame the coronavirus for the market downturn.

Why The Coronavirus Triggers The Long Overdue Global Recession

In particular, the Dow Jones suffered the largest fall in history in a week, a loss of $12,36%. The US stock market lost $3,58 trillion dollars and the European markets lost $1,5 trillion, all that in a week’s time. Oil dropped 14,35%, from $58,5% to $50,01.

The Federal Reserve is ready to act, as it issued a statement affirming that the central bank would use all its tools and “act as appropriate to support the economy”.

The signs are there, the economic fallout is starting to take hold as retailers importers and home builders are facing delays in shipments from China. It looks like there will be disruptions to the global supply chain. And if this is not enough, people do not go to restaurants, people do not go to the movies, people do not go out, people do not travel, all this, to avoid contracting the virus.

There is no doubt there will be an economic downturn but, we still do not know to what extent. Unfortunately, the favorable scenario, that predicts the virus remains largely confined in China and thus affects Chinese factory production, collapses.

The coronavirus is now present in more than sixty-five countries and almost out of control in China, South Korea, IRAN, and Italy. It is not a Chinese issue, it is a world issue now and its effect on global growth will be devastating. It looks like the coronavirus triggers the long overdue global recession.

Evidence of the Economic Fallout

Toll Brothers, the luxury home builder, said home sales to Chinese buyers had been postponed and shipments of fixtures from China delayed. The shoemaker Steve Madden said some shipments would be delayed for three weeks, as its Chinese factories struggle to operate with fewer workers.

Already there is a drop in tourism, as people are afraid to travel. Singapore, Malaysia, Thailand, and many Asian countries are suffering from a huge drop in tourists from China. With tourism, airlines are suffering heavy losses with many flights running at a loss.

The Coronavirus Triggers The Long Overdue Global Recession

Technology is expected to take a large blow along with car manufacturing. There are many car manufacturers complaining about car part delays from Chinese factories.

Moreover, there are signs that American consumers, they are those who drive the economy, were becoming increasingly uneasy.

A modern economy needs optimism and willingness to spend. But in the last week, investors came to terms with the new economic outlook where corporate profits will stop growing and in many cases will be replaced by losses.

Low-Interest Rates

Many investors expect the Fed to step in and act quickly on interest rates in the face of coronavirus news and market downturns. Even President Trump intervened on Friday and actually said that he hoped the Fed would step in. Soon the Fed issued a statement reassuring investors that is ready to act.

The 2008 Demand Shock

The 2008 Great Recession was largely a “demand shock” as a number of banks collapsed, home prices plunged and trillions of dollars in household wealth were wiped out. People and businesses suddenly had less money to spend, causing the economy to fall into a deep recession.

The 2020 Supply Shock

I am afraid lowering interest rates will not be enough. It is not a coronavirus threat anymore, it is a supply threat.

China the world’s factory struggles to get back to work. Imagine, if every factory and office produced 10% less than it did last year. This is very difficult to fix, even if you put more money into people’s pockets, it will not make up for closed stores and factories that aren’t operating.

All the signs are here, the coronavirus triggers the long overdue global recession.

Nouriel Roubini’s Prediction

Nouriel Roubini, the well-known economist, who predicted the 2008 recession, and head of the Roubini Macro Associates, predicts that the coronavirus will have severe economic repercussions for the global economy. That was a couple of days ago when he was interviewed for a German magazine called “Der Spiegel”.

In particular, he says that the markets have not come to terms with the extent of the effect the coronavirus is going to have on the global economy. According to Roubini, the markets are making three mistakes.

1-This is not an epidemic contained in China, but a pandemic.

2-It will take a long time to contain and the politicians haven’t come to terms with the huge impact it will have.

3-The markets will take a steep dive and it is not certain after that dive a strong recovery will follow.

The Chinese recovery will not be enough to cover the expected 6% growth for this year. Nouriel Roubini expects the Chinese economic growth to be between 2,5% and 4%.

We are Entering the Long Overdue Recession

The coronavirus triggers the long overdue global recession

As I said before people won’t go to the movies, people won’t go to restaurants, people won’t go to live events, people won’t go on holidays, and in the worst case, people won’t go to work. It is already happening in the 10million city of Wuhan in China. In France, the famous Louvre museum is closed and in football-crazy Italy, the derby between Juventus and Inter will take place with no spectators.

During the SARS epidemic, China was only 4% of the world economy. Today, China is 20% of the world economy. In addition, globalization back then was not as deep as it is right now. Furthermore, China’s contribution to world growth back then was 20%. Nowadays, China’s contribution to world growth is 50%.

China has become a key for global supply chains. Firms from around the world are shutting down, they cannot do business because key supplies do not come from China.

It will take time for the coronavirus to ease off. By then, global firms will be out of stock and supplies. China will face a huge task, to resupply the whole world. Some argue It will only take a few weeks for China to resupply the whole world. I do not buy this. According to my calculations, this will take several months.

All made in China or made in PRC product importers will see their warehouses empty and it will take a long time for them to see them full again. At the same time, American and European manufacturers will stop operating because they too will run out of Chinese components necessary for the completion of their products.

Some factories would have to close temporarily and some would have to close permanently. If that happens, then many people would be forced out of work.

It is a common secret that the coronavirus triggered the long-awaited recession. Financial analysts are worried about the overpriced stock market, the low yields, the quantitative easing, the negative interest rates, the global debt bubble, the geopolitical uncertainty.

Industries Affected by the Coronavirus Pandemic

  1. Tourism
  2. Airlines
  3. Car Manufacturers
  4. Technology

Coronavirus Recession and Gold

The Coronavirus Triggers The Long Overdue Global Recession

A few days ago, Citigroup one of the US’s largest banks predicted that gold will hit $1700 per ounce, in the next six and twelve months and $2000in the next 2 to 24 months. Moreover, after last week’s carnage for the stocks, the Fed is expected to intervene and cut interest rates by 50 basis points at the next meeting.

This move will hopefully help boost consumer sentiment weakened by the spreading coronavirus. That means lower yields and negative interest rates. It will also add extra steam to bullish gold.

Following is a chart that shows how gold outperformed stocks during calamities.

Black Monday1987 Iraq-Kuwait War1990 Dot Com Crash2001 Financial Crisis2008
Stock Market Decline -38.9 -22.5 -27% -34%
Gold Price Results +5% +7.5% +1% +5%
Gold Outperformed Stocks By Ratio 45:1 31:1 29:1 40:1

Conclusion

The coronavirus is already causing headaches. As the public comes to terms with the effects of the virus on the global economy, the stock market is tumbling down, with stocks last week taking a beating. The Fed is about to step in and lower interest rates. Will that be enough to stop the coronavirus triggers the long overdue global recession?

No, this is not going to be enough. There is going to be a supply shortage, as China, the world’s factory, won’t be able to keep up with demand after its factories reopen. The world economy is slowing down and the recession is looming. In times of turbulence, investing in precious metals is a must. And the king of precious metals is gold. Yes, The Coronavirus Triggers The Long Overdue Global Recession.

 

Gold Breaks Over the 1600 Mark

Gold Breaks Over the 1600 Mark

Gold breaks over the 1600 mark
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Over the last few days, we’ve all witnessed gold breaking over the $1600 mark as stocks suffer significant losses. There is a lot of nervousness in the market which is one of the reasons why gold breaks over the 1600 mark, and people are putting gold and silver into their portfolios.

Why Gold Breaks Over the 1600 Mark

In the meantime, the US dollar is actually strengthening against both the Euro and the Japanese Yen. Investors see the dollar as a safe haven trade, as people move into the dollar and into the US equity market. In this market condition, there is a headwind for precious metals, especially gold.

The Coronavirus Threatens the Global Economy

Gold Breaks Over the 1600 MarkThe coronavirus has caused an unprecedented economic slowdown with investors rushing into gold to safeguard their investments. The market did not take seriously the effects of the coronavirus early and only recently came to terms with the massive threat it poses to the global economy.

A few days ago the Chinese finally admitted that their GDP is going to get hammered in the first quarter. The market now is taking this seriously. If this continues for very much longer it will have a devastating impact on global growth which will put all the central banks including the FED on full monetary easing policy and that reality is starting potentially to sink in.

More Reasons for the Gold Rally

In addition, the coronavirus is just the tip of the iceberg. There are many reasons for the price of gold to hit the roof apart from the Wuhan virus.

  1. The overvalued stock market will have to correct itself sooner or later
  2. The upcoming recession that is been held up by the FED
  3. The war on cash with the Europeans continuing their negative interest rates policy
  4. The low bond yields
  5. The global debt bubble
  6. Middle East tensions in Syria escalade 

Conclusion

The metals, gold, and silver, continue to charge higher with parabolic moves and heavy volume. In my opinion, it will be healthy for gold to see a pullback, to allow some profit-taking if this is going to be a bull market. All the signs are there for the rally to continue, we are bullish on gold and silver.