May Be Closer Than Ever Before
Heard of that huge financial asset bubble that's supposedly sitting out there, looming over everyone and everything? You know, the one that's been pumped up beyond sustainability by quantitative easing and fiscal stimulus?
According to at least one person who watches the markets like a hawk, it's getting ready to burst, and burst big time.
A tree is pruned back so that it can continue to grow healthy and produce good fruit far into the future.
Henry Dent, the author of Zero Hour and many other books about finances and economy, has gone on record within the last week that the financial assets bubble will not only burst very soon, it will take things down harder and faster than anything else has before.
By April, Dent expects the markets will crash 40%. By the end of 2022 or the beginning of 2023, he predicts the bottom, with 80-90% erasure, depending on the sector. Then, he believes, the global economy will be able to grow again.
For that period of time, however, it will be the worst economic crash that most of us have ever seen, and in pure numbers, the Great Depression will pale in comparison.
On top of that, he thinks over 200 trillion dollars of financial assets will just be gone.
Okay, Boomer. Another Doomsdayer. Whatever.
As many are quick to say around here, I'm not an economic or financial expert by any stretch of the imagination. However, in nature, as well as in the markets and the greater economy, what goes up, must come down. The question is, how much up and how much down? Also, how did we get to the highs, and how will that affect the lows?
Because of the quantitative easing, and now the multiple stimulus packages (with more on the way), central banks, notably the Fed, have been doing the digital equivalent of printing money, to the tune of multiples of trillions of dollars over just the last 12 years alone. At some point, there comes a reckoning.
Dent thinks the grandaddy of all reckonings is upon us.
Dent's Numbers
First off, since 2008, after the housing market fell and the easing began, the economy has limped along at around 1.5% average growth. Yet, because of the lower interest rates and the unprecedented injection of cash into the system, financial assets have grown as if the economy was booming like never before. In a normal boom, total financial assets would be around two to three times GDP. Right now, they're 6.2 times (global GDP is in the $85-87 trillion range). Debt, in a similar situation, would be at 1.5 times GDP. Instead, at $253 trillion, it currently sits around three times GDP.
This can't continue forever. It's just too big to control.
Dent doesn't think the central banks can continue to print money. At some point, confidence in their ability to prop up the global economy will be lost, and Dent feels that's coming sooner than later.
"Are they going to print $200 trillion to replace that deficit?" he asked in a recent interview with Daniel Cambone of Stansberry Research, "I don't think so."
Nowhere Is Safe
Dent doesn't think there will be much to put money into that will actually survive this massive downturn. Real Estate will be among the hardest hit, and stocks will follow. Even gold, silver and yes, cryptocurrency, will take huge hits.
In fact, the only things he believes that will have any growth at all over the next two years will be 30 year treasury bonds and cash. That's it.
When the bottom finally arrives, Dent believes that Bitcoin will be back down to around $3,000 USD, and gold will plummet to $1,000.
The argument that both of those are hedges against downturns and inflation doesn't apply here since the Fed and other central banks have been fighting deflation all this time. As it is, Bitcoin has tended to follow the broader financial markets more than it has hedged against it.
Dent does predict that will change for Bitcoin, but not for quite a while yet, since it and crypto are still very new.
Forest fires, like the ones that menaced a large swath of Western Oregon during September last year affects more than just the trees and wildlife. Fire doesn't discriminate, and the fallout reaches far and wide.
Cosmic Alignment
Running throughout Dent's assertions are a convergence of economic patterns at 20, 40, and 90 years, along with earth shattering change that comes along every 250 years.
Wrapped up in the 20 year pattern are blockchain and cryptocurrency. He says there's real strong correlations between them and the Dotcom bubble of the late 1990s early 2000s. He says after that bubble burst, the internet emerged as the economic force that it is today. Dent thinks crypto will too, with Bitcoin leading the way. It just needs to be burnt down to realistic levels first, and the bad alt coins flushed out.
At 40 years, we have depression/recession bottoms, like 1942 and 1982. Since Dent is predicting the bottom of this next crash to be in late 2022, it would be the next one of that 40 year bottoming cycle.
At the 90 year range are the financial super bubbles that finally break. Or the ones that result in major depressions. The last two happen to be from 1839-1843 and then 1929-1932, according to Dent, even though in the U.S., the Great Depression dragged on well beyond that.
Finally, the 250 year cycle. Dent believes this won't just be a long overdue need to put the world's financial house in order. It's going to also bring about sweeping change. Like the Protestant Reformation that began in the early 1500s, which eventually reduced the political power and control of the Catholic Church. Then, in the 1770s with the American Revolution and the forming of a new kind of government, a Constitutional Republic, which over the course of time overthrew the ruling monarchies by spreading various forms of democracy around the world.
The big change that will occur this time? Dent believes that the usefulness of the central banks will be called into question more than ever, resulting in their downfall. He thinks the central banks will be swept away, and in their place, new banking and economic systems that will be grown from the bottom up, rather than managed and exploited from the top down.
Sound familiar?
The Good News
It's going to be bad, very bad, Dent says, but it won't last very long, relatively speaking, and the world will be better for it. Prices will be forced to return to sustainable levels. Housing will become more affordable for more people. Banks will be forced to write down their debt and what Dent calls Zombie corporations, the ones barely holding on, will go away.
Dent says that in addition to the central banks, the wealthy, particularly those whose riches stem from financial assets, will be the hardest hit. Unfortunately, that means businesses will fail with them, which will lead to many people out of work. However, those who don't have their money tied up in non-cash assets or treasury bonds stand to weather this money tsunami better than those who do.
Personal Finances
Again. I don't know if Dent is right. I agree with his assessments, though. Things can't just keep going up. We can't just spend, spend and spend some more without something to back it. Whether it happens within the next 45 days, before the end of the year, or sometime after that, it's coming. The greater question is, am I prepared for such an event?
The answer is, not nearly as well as I think I need to be. I have food and water. I have a very reasonable mortgage, given the size and current value (though way overblown, if Dent is correct) of my home. I've been trying to cut down my expenses without getting rid of things like internet and entertainment entirely, and our energy expenses are about as low as they can be with just the two of us mostly gone all day.
Even so, were we to sell our home and live somewhere else in a smaller house with less energy needs and lower taxes, that would be better. Maybe even tap into solar or some other alternative energy in the process.
Also, living somewhere we can offset our grocery bill for more than a few months out of the year via a garden would be good, too.
My wife, being in the health industry, even in housekeeping, has a relatively safe job. Mine, however, even though I'm supposedly back to full-time work (which I'm doubting, but okay), is anything but safe. Just with the restrictions if not complete closures of businesses (thanks to the results of restrictive measures posed here in Oregon) where the machines I fill, collect from, and service are, I've been laid off twice in the last ten months.
Which businesses are as likely to go under if this financial assets bubble bursts? The ones who are barely holding on now during the restrictions, I would think. When discretionary income is gone, amusement or entertainment is one of the first things to go.
Do What You've Got To Do
I know a lot of this is not what people want to hear, even if there's a general buy in to the whole reason blockchain and crypto exist in the first place. It's not for the speculation and the easy money. It's the alternative to the current financial banking systems and a whole lot more.
The fiat system isn't going to go away without a lot of kicking and screaming. Or, in Dent's estimation, without a major amount of short term (hopefully) pain. In my opinion, it's hard to tell whether his predictions are a case of the cure being worse than the cancer, but I don't see how we get from where we are to where we need to be without major upheaval first.
The question isn't if, in my estimation. The question is when.
Dent says it's coming by April, and when it does, the scope and speed of it will be breathtaking.
Personally, I don't know. I'm not as upbeat as Dent is about how things will turn out after it hits, either. I don't think governments and central banks will be swept asunder for something entirely new. But that doesn't mean I don't hope against hope that Dent's right about that part. That will make the coming pain worth it, eventually. Without it, I'm not sure what will be worth it.
So, do what you got to do. I'm not going to be Chicken Little. We'll all know soon enough if 2021 manages to be worse than 2020 was, or if the financial asset bubble somehow fizzles out and we all go about our lives as if nothing happened, because nothing did.
Not panicking at this point, but I'm not holding my breath. Just going to keep doing what I can, come what may.
Images courtesy of Glen Anthony Albrethsen