Are We Headed for a Great Depression 2.0?
I have talked about markets correcting for quite some time (actually began posting more in anticipation of a my fears of us spiraling into a depression like crisis). Here and here are two of the previous forum posts where I dove into a few topics specifically related to RE and touched on a few other issues I identified in our current market. I personally underestimated the global implications of the Covid-19 as it is a lot more serious than most of us think. I've talked about demand for real estate in major cities and a few fundamental factors that are being affected by real estate, but today I would like to talk about how serious I think this crisis will be.
As some of you may have heard, we recently injected 1.5 trillion dollars into our system. Was it because of Corona Virus. Yes and no. The money did not go into Corona-Virus stimulus (perhaps a small portion as of now), but rather into a REPO market to continue to purchase its own treasuries in fear of a "liquidation crisis." This is much like what happened to Long Term Capital Management in the late 90s or Bear Sterns in late 2008. I think we are headed for a global liquidity crisis. I believe what is setting up in global markets is a
This will lead to unanticipated deflation which will drive us into the next Great Depression 2.0. I really hope I'm wrong and this is more like a 1987 stock market sell off where we can see extended growth for another 10-20 years following this correction.
Unfortunately I see a lot of red flags and I urge you all to take protective actions. Below is a quick summary of historical signals that we are seeing that are very similar to that dreadful early 1900s era:
1. Income Inequality is at the highest levels since 1930.
2. Agricultural Depression was extremely similar to 2008 subprime crisis.
3. Roaring 20's is very similar to the stock market run we have seen in the last 10 years.
4. Political Polarity gap is increasing at highest levels since the 1930s (Liberals vs. Conservatives today / Unions vs. Nationalists/Facists in 30s) (I am not insinuating that these parties are similar as conditions were very different, simply reiterating that the gap between both parties is quite extreme.
5. Issues with monetary systems (Gld Std. vs. King Dollar)
6. Interest Rates at lowest levels since the 40s
7. Debt - GDP at highest levels since WWII
8. Technological advances creating more globalized economies and efficient means of communication (radio/phone mass adoption vs. internet and tech mass adoption).
These are just some of the few uncanny similarities I am seeing between these time periods. I am not saying the world is going to end, but I do think a very rough period is up ahead. Deflation is a beast that Bankers fear as people stop spending and last resort efforts to create inflation after deflation can have grave consequences.
Contrary to the belief that majority of people have, I think we will see a 60-80% correction in the stock market (getting close), 30-60% in real estate (expect lag). During these times, having cash will be king and making necessary adjustments if you are leveraged will be key. If we see something like the mid 30s with a gold revaluation, then Gold will be key (I recommend everyone to own a small amount of gold just in case). Even if you don't believe me, please have a plan in action in case things were to go south. Some of you will hate to hear this, but this is a reality we must now come to face as the time gets closer. You can choose to be proactive, hope for the best and prepare for the worse or be caught off guard, unprepared having no idea what to do.
We are at a critical period where we should see how this is going to play out over the next few months. But even with the severity of coronavirus deepening, please make sure you have adequate amounts of food, stationary items, simple medical supplies, and immune system boosters (the best way to protect yourself from the coronavirus is to protect your immune system [Vitamin C, Vitamin D, sleep & adequates amounts of vegetables].
In terms of protecting yourself from a depression, very similar: Have enough food to get by for a few months, medical supplies, good support system (nothing trumps family), guns (protection is key), and enough cash for emergencies.
As crazy as I sound, do what you will with this information. I hope you all stay safe and prepare accordingly. Hopefully I am wrong and most of you make fun of me a few months from now if this blows over for being so irrational and extreme (I would be ecstatic if everything ends up fine). My hopes is if this forum post helps even one person, then I have done my part.