Will this health crisis turn into a full blown financial crisis?

[BillStrangeOgre]

With the US pledging to pump 1.5 trillion into the US economy and an estimated 3-4 needed and countries around the world following suit is this enough, what's the outcome? The world economy has fallen off a cliff. As countries go into lockdown, consumer spending shrinks, companies come under threat, job losses...repeat and rinse until the virus is beaten. We haven't fully recovered from the last crisis in 2008. Can a full scale financial crisis really be averted again through yet further rounds of QE? Last time we faced a credit crunch. Last time the banks needed recapitalisation...how long before they come under threat again? Old adage; money doesn't grow on trees!

Scary times

[FritsSikkink]

There will be a big financial crisis

[BillStrangeOgre]

23 minutes ago, FritsSikkink said:

There will be a big financial crisis

Would you like to expand?

[timendres]

In my opinion, we are going to see a global recession as a result of the Wuhan virus.

 

I do not see a "crisis" on the horizon. Governments are starting to figure out that they need to push this golf ball through the hose (slowly allow herd immunity to be acquired through cycles of short quarantines). This will certainly hit the economies of every country over the next year to two. But I do not think we will see any sort of collapse. Countries that can will make cash infusions to prop things up, and more debt will be accumulated. We are going to see a serious shakeout of the known weak companies and banks, and there will be another debt episode, like 2008, but I do not think as bad. You can expect stock markets to go down further from here, and there will not be a "V-shaped recovery". That is a fantasy being prayed for by those who are fully long. Within three years, Wuhan will be another seasonal flu, and the global economy should start the recovery process.

 

My crystal ball is as good as anyone else's, but that is my best guess.

[WalkingOrders]

Hopefully the recovery will be soon. As far as full blown financial crisis. We're in one. 

[GeorgeCross]

i couldn't predict what dow futures will do over the next 2 hours never mind 2 months but one thing i do know the federal reserve cannot print a vaccine

[FritsSikkink]

19 minutes ago, BillStrangeOgre said:

Would you like to expand?

Airlines, hotels, bars, restaurants are hurting already.

There will be problems with supplies from other countries, so other industries will get into problems too. 

People get sick but can't afford care / hospitals can't take anymore patients. Productivity will be greatly effected by lockdowns.

[Dap]

Yes, it will.

[soalbundy]

On 3/20/2020 at 1:18 PM, FritsSikkink said:

Airlines, hotels, bars, restaurants are hurting already.

There will be problems with supplies from other countries, so other industries will get into problems too. 

People get sick but can't afford care / hospitals can't take anymore patients. Productivity will be greatly effected by lockdowns.

Invest in coffins, you know it makes sense.

[LomSak27]

On 3/20/2020 at 12:31 PM, FritsSikkink said:

There will be a big financial crisis

This is going to be ugly. Sorry, correction,  it is already ugly, you just don't know it yet.

 

 

 

Edited March 21, 2020 by LomSak27

[allanos]

It depends on one's definition of a full-blown financial crisis. I would say we are in one already.  Certainly, the early fiscal measures announced by Trump and Mnuchin did nothing to halt the market slide/drop.  The markets were already in Buffett's famous "irrational exuberance", and were going to come tumbling down at the slightest hiccup. 

 

As we all know, stock markets take the stairs up and the elevator down.  Once the selling started, they went into free fall as players tried to liquidate their longs before they lost their shirts.  This is why we saw "safe havens" like gold, BTC, etc. fall as holders liquidated as quickly as they possibly could to cover losses elsewhere. Excluding BTC, which wasn't around in 2008, we have seen a similar trajectory to that which occurred in the previous financial crisis, although the present cause is different.   

 

The present money-printing by the Fed, and others, may slow the rate of decline but it won't halt it altogether.   Naturally, the purchasing power of the dollar will fall, akin to it being a (stealth) tax increase on all US citizens.  At some stage, the markets will find a bottom, and begin a slow upward move via the "staircase".  I don't believe a v-shaped recovery is on the horizon.

[curtklay]

You can't close manufacturing plants, send workers home, and stop imports without creating mass shortages and debt.

A $1,000 bailout per adult won't even make one month's rent or mortgage payment.

So yes, the financial crisis will linger long after the health crisis is controlled. The magnitude of which can not be predicted.

[fvw53]

11 minutes ago, curtklay said:

You can't close manufacturing plants, send workers home, and stop imports without creating mass shortages and debt.

A $1,000 bailout per adult won't even make one month's rent or mortgage payment.

So yes, the financial crisis will linger long after the health crisis is controlled. The magnitude of which can not be predicted.

printing money and distributing it ....nothing new ...but isn't this socialism?  

[jojothai]

IMHO We are not yet in the financial crisis, It is only just starting to evolve as a result of the close of workplaces, the fall in the markets and importantly the surge in the dollar. 

The second stage of this crisis will be the financial effects on the banking system.

We do not yet know the extent of the damage being caused to the financial world that is not yet visible to us.

Below is from an article yesterday in a mail from a well respected financial research company. It explains one of the issues.

I have also read of serious problems in the bond markets. None of this shows in general public media.

Credit lines are being hit because of the squeeze on liquidity.

We need to hope the USD falls back again Quickly.

 

Text Below from an article I received FYI . This is not financial advice. Do your own research

----------------------------------

Central bankers have cut interest rates around the world. The idea is to make more debt more cheap. Because, with global debt rates off the charts, and economic activity in lockdown, debt is just what we need.

But the interest rate isn’t the only interest rate that matters. There’s also the US dollar exchange rate – a type of interest rate in and of itself.

The US dollar is important in a long list of ways. All of which are hard to explain…

This quote from ING analysts might help to highlight just how important the topic is though: “If cash is king, then dollar cash currently is world president.” So let’s dig into what the world president is up to.

Companies who want to conduct trade need US dollars to do it. That’s because it’s the global reserve currency. The currency people trade in.

The US dollar is also the favoured currency to borrow in. If a government wants to attract more lenders at a cheaper interest rate it can do so by taking exchange rate risk out of the equation and borrowing in US dollar denominated debt. Argentina’s government may hate America, but they seem to love borrowing in US dollars…

Companies that sell things internationally, which means for US dollars, often borrow in US dollars to reduce their exchange rate risk exposure. If your expenses and revenues are in dollars, then it makes sense for your debt to be too, right?

All of this leaves the world reliant on the US dollar. Its availability and its price – the exchange rate.

So, when the US dollar rises about 6% over a matter of days, it’s a bit like a 6% interest rate hike on the global trading economy and international debt markets. US dollar denominated debt suddenly becomes more expensive for everyone outside the US to repay. And getting your hands on US dollars to conduct trade is suddenly more expensive for everyone.

That’s what has been behind the more recent turbulence in financial markets – the spike in the US dollar and the problems associated with it. Not that anyone reports it that way.

While commentators in Britain lament the fate of the pound, commentators in Australia lament the fate of the Aussie dollar, commentators in Canada worry about their loonie and commentators in…you get the idea… it’s actually just the US dollar that’s spiking against all of them.

The surprising thing is that this is so predictable. Whenever there’s a crisis, there’s a scramble for dollars and the US dollar spikes. Even if the crisis originates inside the US, as with sub-prime, the US dollar rallies.

Gold investors who have read my explanation of the gold quadrants will understand how all this works. They’ll have a keen appreciation for how being a non-American gold investor is a great thing during a crisis. But that’s another story.

Of course, the central bankers know about the US dollar’s importance. And the pressure it’s applying to economies around the world. But the Bank of England, European Central Bank and Bank of Japan can’t print US dollars to resolve the situation. They can only print their domestic currencies. And doing too much of that could make the exchange rate even worse, exacerbating the cause of the crisis (to the extent that it’s caused by a rising dollar).

That’s why the US central bank, the Federal Reserve, is making US dollars available to central banks around the world. “Fed opens dollar swap lines for nine additional foreign central banks” reports Reuters.

At this point, the alphabet soup of central bank rescue programs is getting mighty thick. And there’s not much value in understanding how they all work. Which is why nobody does…

But the dollar swaps are fairly straight forward if you stay out of the details. Details which scarred me for life in an exam many years ago, incidentally. So let’s go with Reuters’ explanation:

The Fed said the swaps, in which the Fed accepts other currencies in exchange for dollars, will for at least the next six months allow the central banks of Australia, Brazil, South Korea, Mexico, Singapore, Sweden, Denmark, Norway and New Zealand to tap up to a combined total of $450 billion, money to ensure the world’s dollar-dependent financial system continues to function.

Those countries were given swap lines during the 2007 to 2009 crisis, and the Fed has permanent swap arrangements with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank.

Such currency swaps are just one way to alleviate the US dollar shortage. (In financial markets, a spiking price and a shortage are synonymous.)

Back in 2008, some banks based outside the US had operations within the US too. And they used these to access US dollar rescue funding for their parent institutions back home.

All this played out in an interesting (embarrassing) way for Aussie banks in particular. They didn’t need bailouts from the Aussie government in Aussie dollars. And they proudly repeated this to the world until the Aussie regulators started claiming credit for the same thing.

Those regulators became the toast of the town, amongst regulators globally. Until I helped to expose the systemic mortgage fraud scandal that led to a Royal Commission which humiliated the regulators right back down to earth. That was the topic of my PhD until the Royal Commission robbed me of the topic…

Anyway, it turned out that back in 2008 the Aussie banks needed a bailout in the form of US dollars. Which they got in secret. Until my colleague at out publishing firm exposed that too.

Here’s what happened, as I’ve written for our Aussie readers, which is worth keeping in mind because British banks also feature in the story…

Two years after the Federal Reserve rescued a long list of banks in a secret lending program in 2008, American politicians Chris Dodd and Barney Frank managed to pass the Dodd-Frank Act. Part of the legislation forced the Federal Reserve to reveal who had received emergency funding back in 2008. The idea was to name and shame the bank CEOs of America’s biggest gaudiest banks.

The Aussie regulators and central bankers, who had spent the financial crisis explaining why their superior supervision had spared the Aussie banking system from the fate of its European and American counterparts, were exposed as charlatans by the Dodd-Frank Act. It revealed that Aussie banks had needed rescuing in 2008. In fact, they were amongst the first to take the money.

According to the revealed data, NAB used Federal Reserve funding three times, amounting to USD$4.5 billion. Westpac borrowed US$1.09 billion and was one of the first to tap the emergency loans.

As a Chief Financial Officer of one of the big four banks described it, ‘…it was really only when the Fed started to help out and provide a US dollar swap facility for the Reserve Bank and other central banks that we were able to get through that period.’

To be clear, we’re talking about a narrowly averted collapse of the Aussie financial system. Which was only averted thanks to an American secret rescue program. And very few people are aware of this. Those who are, only by mistake thanks to US legislation.

As I mentioned, it wasn’t just Aussie banks secretly accessing funding. Lloyds was on the list too, for example. Alongside a who’s who of European banking.

My point is that all of this is likely repeating today. The US dollar has spiked, causing problems. We know this from the currency swap lines the Fed has made available internationally. But banks here in Britain are likely accessing confidential US dollar funding from the Fed to save themselves.

A silent banking crisis may well be very much underway, behind the scenes.

Perhaps It’s time to act and get some of your wealth outside the financial system.
 

[phantomfiddler]

1 hour ago, soalbundy said:

Invest in coffins, you know it makes sense.

Also in Pizza Hut, since only food deliveries will be allowed after restaurants are closed !

[Tayaout]

We're already in a financial crisis. 

[DogNo1]

It's probably too late to go to cash.  It appears that Trump and the US Congress are determined to keep companies functioning, supply lines operating and workers paid for a while.  The idea is that the money given out will allow businesses big and small to get back into operation when the pandemic dissipates.  The big danger is that it will last longer than 6-8 weeks, the period of time during which the government is prepared to support everyone.  The major flaw in the plan that I see is that the CDC, Dr. Redfield and VP Pence are not willing to commit to testing everyone.  We already see that many younger people are not voluntarily practicing social distancing.  Without testing everyone, people who are not aware that they are virus carriers will probably engage in reckless behavior and the infections will go on.  Someone needs to point out to Pence and Dr. Fauci why 100% testing is important, even if 90% test negative.  It is the 10% who don't know that they are sick who will continue to spread the virus.  

 

Regarding the stock market, there will certainly be a lot of residual damage, even if the pandemic ends in six weeks.  I agree that the recovery will be stair-like I just don't know how large the steps will be.  My portfolio was up 5% in the morning yesterday but had fallen back to its Thursday level by the end of the day.  One step up and one step back down.

[Thomas J]

On 3/20/2020 at 1:08 PM, WalkingOrders said:

Hopefully the recovery will be soon. As far as full blown financial crisis. We're in one. 

Walkingorders 

 

You are correct.  I am no physician but I do wonder how a virus that has killed 11,000 people worldwide, the vast majority of them elderly and/or with multiple existing health conditions is a pandemic.  The flu has already killed 20,000 in just the USA.  The shutdown may be necessary but I do worry the "cure is worse than the disease"  There will be millions particularly in third world countries with no social safety nets who lose their jobs and some will starve. 

[Logosone]

During the Great Depression of 1929 the Dow Jones fell 89.2% in less than 3 years.

 

We are very, VERY, far away from such figures at the moment.

 

Only if the great panicmongers get too much attention and gain the upperhand could things get worse than in 1929.

 

Some people now have lost their jobs, there will be more unemployed, less spending, less tax income, greater debt for governments.

 

The problem is that we have quasi-socialist systems all across the world, with most people employed by the state and living off the state, with a small capitalist system to keep everything going.

 

As usual it will be the this capitalist system that will save day, those people working and making money that pay for the taxes other people spend.

 

This will be harder going forward, there will be a period of stagflation, but strong companies will survive, big and small.

 

 

[Nanaplaza666]

27 minutes ago, phantomfiddler said:

Also in Pizza Hut, since only food deliveries will be allowed after restaurants are closed !

Then better invest in the delivery companies . Who says it will be pizza's they'r eating . ????

[Nanaplaza666]

29 minutes ago, phantomfiddler said:

Also in Pizza Hut, since only food deliveries will be allowed after restaurants are closed !

Then better invest in the delivery companies . Who says it will be pizza's they'r eating . ???? only jeff amazon is getting even richer in this crisis , he's one of the only companirs hiring people at the moment because they can't handle the amount of work . Plus ofcourse the delivery services for food and shopping .

[Mac98]

2 hours ago, soalbundy said:

Invest in coffins, you know it makes sense.

Not in Thailand.

[brianthainess]

Aussie dollar down to below 19 baht, already a crisis if you rely on an Ozy pension????

[Brunolem]

Here is what the renowed economist (and generally optimistic) John Mauldin writes in his latest newsletter, from yesterday:

 

Let me be clear. The US is facing a deflationary depression. One cannot have the economic impacts we are seeing and think they will magically go away when the virus does. That’s not how economics and business work. 

[BestB]

Some will get insanely rich, those in the middle will get poor and poor have nothing to lose to start with.

 

of course this will result in market and economic collapses , perhaps a war is also on the cards in near future if history is anything to go by. 

[Brunolem]

The economic/financial crisis will fully blossom in a few weeks or months, and it's gonna be a doozy.

 

In 2008 we entered in the cyclone, then for 10 years we were in the eye, believing that all was well, and now comes the tail which is generally much worse than the head.

 

(This comparison was made by Doug Casey who, like a number of others, has been waiting for this event to unfold)

 

Most economists outside the mainstream TV/newspapers think that we are about to get a once a multi generations crisis, that could last between 5 and 10 years.

 

[placnx]

41 minutes ago, Logosone said:

During the Great Depression of 1929 the Dow Jones fell 89.2% in less than 3 years.

 

We are very, VERY, far away from such figures at the moment.

 

Only if the great panicmongers get too much attention and gain the upperhand could things get worse than in 1929.

 

Some people now have lost their jobs, there will be more unemployed, less spending, less tax income, greater debt for governments.

 

The problem is that we have quasi-socialist systems all across the world, with most people employed by the state and living off the state, with a small capitalist system to keep everything going.

 

As usual it will be the this capitalist system that will save day, those people working and making money that pay for the taxes other people spend.

 

This will be harder going forward, there will be a period of stagflation, but strong companies will survive, big and small.

 

 

This crash could be next worst to 1929-40. It took many years for the market to recover from that. Certainly it is significantly worse than 2008. That's clear already.

 

Stagflation is not an issue now. We have had chronic deflation for years for various reasons, but now we will see debt spiral, and serious repricing downwards of assets. Debts are much higher in the US than in 2008, but then there is all that liquidity that found it's way all over the world into bad investments. It is pitiful that the central banks, US in particular never figured out a way to reset interest rates back to normal levels. This will now require some really extraordinary solution. 

59 minutes ago, DogNo1 said:

It's probably too late to go to cash.  It appears that Trump and the US Congress are determined to keep companies functioning, supply lines operating and workers paid for a while.  The idea is that the money given out will allow businesses big and small to get back into operation when the pandemic dissipates.  The big danger is that it will last longer than 6-8 weeks, the period of time during which the government is prepared to support everyone.  The major flaw in the plan that I see is that the CDC, Dr. Redfield and VP Pence are not willing to commit to testing everyone.  We already see that many younger people are not voluntarily practicing social distancing.  Without testing everyone, people who are not aware that they are virus carriers will probably engage in reckless behavior and the infections will go on.  Someone needs to point out to Pence and Dr. Fauci why 100% testing is important, even if 90% test negative.  It is the 10% who don't know that they are sick who will continue to spread the virus.  

 

Regarding the stock market, there will certainly be a lot of residual damage, even if the pandemic ends in six weeks.  I agree that the recovery will be stair-like I just don't know how large the steps will be.  My portfolio was up 5% in the morning yesterday but had fallen back to its Thursday level by the end of the day.  One step up and one step back down.

Testing is really key to getting a handle on the public health aspect of this financial crash. Investors need some clarity Dr Fauci testified about the problem with inadequate testing. He knows the importance of using testing, though 100% testing is not needed to understand the nature of the problem, but repeat testing would be needed.

https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(20)30521-3/fulltext?dgcid=raven_jbs_etoc_email

 

We still don't know to what extent it will come back in 6 months and to what extent herd immunity will be effective, among the many questions outstanding.

 

The stock market is certainly more likely to have a U- or L-shaped recovery, since it will take time to learn how the virus can be contained. 

 

[scubascuba3]

I'm concerned about the banks here and back home, I've split my money between banks and taken some cash out.

 

As we are in the middle of a disaster movie i wouldn't be surprised if some nucs get fired over to China if they find this was planned by China

Edited March 21, 2020 by scubascuba3

[Vigilante]

I've been hearing mumblings of the 'R' word lately

Reset.

The over-leveraged, bubble-on-top-of-bubble, bankrupt govts, zombie banks juggernaut is not coming back to life

Don't buy the dip..if any.

 

[Logosone]

13 minutes ago, placnx said:

This crash could be next worst to 1929-40. It took many years for the market to recover from that. Certainly it is significantly worse than 2008. That's clear already.

 

Stagflation is not an issue now. We have had chronic deflation for years for various reasons, but now we will see debt spiral, and serious repricing downwards of assets. Debts are much higher in the US than in 2008, but then there is all that liquidity that found it's way all over the world into bad investments. It is pitiful that the central banks, US in particular never figured out a way to reset interest rates back to normal levels. This will now require some really extraordinary solution. 

Testing is really key to getting a handle on the public health aspect of this financial crash. Investors need some clarity Dr Fauci testified about the problem with inadequate testing. He knows the importance of using testing, though 100% testing is not needed to understand the nature of the problem, but repeat testing would be needed.

https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(20)30521-3/fulltext?dgcid=raven_jbs_etoc_email

 

We still don't know to what extent it will come back in 6 months and to what extent herd immunity will be effective, among the many questions outstanding.

 

The stock market is certainly more likely to have a U- or L-shaped recovery, since it will take time to learn how the virus can be contained. 

 

 

No, it is nowhere near as bad as 2008. The system came close to total collapse then. I've not seen any banks failing. Have you?

 

It is also nowhere near the 1929 scenario, when the Down Jones fell by 82% in under three years, We are very far away from those figures.

 

And yes, stagflation will be an issue going forward. Deflation occurs when the inflation rate falls below 0%. The annual inflation rate in the US is 2.3%, so please don't talk nonsense like we have had chronic 'deflation' for years.