CAVILACIONES SENTADO SOBRE EL VOLCAN

( NUESTRA VERSION)



La burbuja económica global reventó en el 2008.

Se rompieron las cadenas de pagos a nivel global.

Quebraron todos los bancos universales.

Si. Todos.

JP, BOFA, CITI, GOLDMAN, SG, Santander, Deutsche, et al.

También muchas industrias, como los fabricantes de carros, como General Motors, entre otros.

Fannie Mae and Freddy Mac. Todo el sector construcción deshecho y quebrado.

Y compañías de seguros inmensas, como AIG, entre otros muchos “muertos” más en la cadena.

El sistema se rompió.

Pero no se hicieron los ajustes.

Se prefirió seguir la fiesta.

Y la orquesta siguió y sigue tocando.

Hoy los llaman “zombis”. 

Porque son muertos vivientes.

Muchas empresas y bancos, y hasta economías, como la economía global, por ejemplo, han permanecido en ese estado, mientras la FED y todos los bancos centrales del mundo con ella, desde ese momento comenzaron el trabajo de” resucitar” al “muerto”. Y mantenerlo “resucitado”.

Por lo menos, aparentemente.

Evitar el pánico a toda costa.

Y así, mantener la apariencia de normalidad. Que todo seguía caminando normalmente, como siempre, mientras que los estados emitían y emitían suficiente papel moneda sin respaldo, para mantener la liquidez del sistema y la maquinaria económica y de empleo funcionando, endeudándose más allá de todas las posibilidades, manipulando los mercados, llevando las tasas de interés a cero o negativas, "empujando" a los inversionistas hacia los mercados accionarios, desposeyendo a los ahorristas y jubilados, para mantener la ficción y evitar el enorme desempleo y el caos social, que esa gran depresión o gran ajuste, traería en ese momento. Y con ella, la pérdida del poder.


Después de decenas de trillones de dólares emitidos durante los últimos diez años, los precios de los valores, y otros muchos activos financieros y de real estate están nuevamente claramente sobrevaluados.

Sobre todo, comparando, por supuesto, con lo más bajo de la corrección del 2008/2009.

Mientras tanto, desde ese momento, solo la deuda norteamericana ha crecido de 7.2 trillones y con un PBI de 14 trillones de dólares en el 2008, a 21 trillones con un PBI de 20.5 trillones de dólares en el 2019, para poner un solo ejemplo. 

Es decir, se ha triplicado la deuda. Y el crecimiento del valor económico solo aumento 50% en el mismo tiempo.

Las deudas de las personas, las corporaciones y los países, se han acumulado a límites insostenibles.

El cash aumenta en los bolsillos de los 1%´s y los balances de las corporaciones, estas últimas por falta de una demanda que motiven nuevas inversiones, y los primeros por el riesgo creciente de estar invertido en mercados altamente volátiles con rendimientos inaceptables.

Y las diferencias sociales se volvieron abismales. 

El desorden social será creciente y las tensiones solo aumentaran.

Hoy día, la mayoría de los inversionistas son más "ricos" que, en el 2008, en términos de valores financieros.

¿Pero lo son todos realmente? 

En una economía global quebrada y en franco deterioro, donde la apariencia de bienestar se mantiene solo por los precios de los valores en los mercados financieros y de los activos, aunque quizás es muy posible que estos no reflejen en realidad el valor real, el valor económico del bien, en nuestro balance de inversiones.

La inequidad se ha hecho evidente.

El curso del crecimiento global sincronizado ha llegado a su fin.

Sin más endeudamiento, se acabó el consumo.

La demanda global ha tocado sus límites y empieza a contraerse.

China y USA han entrado a una guerra comercial que recién se inicia.

Y para colmo de males, llega el Covid-19 para agravar la situación económica y social, además de la sanitaria, del mundo.

Y así, también para fortuitamente robarles a los políticos y a los banqueros el mérito y la responsabilidad del tremendo desplome económico global, que igualmente sobrevendría.

Y ahora estamos aquí. Frente a la burbuja más grande de la historia de la humanidad y nadie puede avizorar el caos que enfrentamos. Algunos parece que ni siquiera somos conscientes que estamos aquí.

Otros creen que la FED nos salvara a todos.

¿Podrá nuevamente?

El gran analista del Financial Times de Londres, el señor Martin Wolf, escribió en uno de sus últimos artículos, hoy nadie puede saber ni predecir donde terminara todo esto. 

Estamos en tierra de nadie.

Eso fue antes de la llegada del Covid-19.

La economía no se puede manipular indefinidamente sin crear ineficiencias y consecuencias imprevistas y funestas. 

En otras palabras, para resumir, no hay lonche gratis.

Este ajuste es el volcán sobre el que estamos sentados.

Como dijo Oscar Wilde, un cínico es el que conoce el precio de todas las cosas, pero el valor de nada.

GRL
18.06.20


We may be heading towards a post-dollar world

Continued erosion of trust in America politically could have an impact on the primacy of its currency

Rana Foroohar

Oil Investment Roulette
© Matt Kenyon


Unfettered globalisation is over.

That is not a controversial statement at this point for obvious reasons, from the post-Covid-19 retrenchment of complex international supply chains to the decoupling of the US and China.

It’s hard to imagine a reset to the 1990s neoliberal mindset, even if Joe Biden wins the US presidential elections, or if the EU experiences a moment of renewed cohesion in response to the pandemic. The world is more likely to become tripolar — or at least bipolar — with more regionalisation in trade, migration and even capital flows in the future.

There are all sorts of reasons for this, some disturbing (rising nationalism) and others benign (a desire for more resilient and inclusive local economies).

That begs a question that has been seen as controversial — are we entering a post-dollar world?

It might seem a straw-man question, given that more than 60 per cent of the world’s currency reserves are in dollars, which are also used for the vast majority of global commerce. The US Federal Reserve’s recent bolstering of dollar markets outside of the US, as a response to the coronavirus crisis, has given a further boost to global dollar dominance.

As a result, many people would repeat the mantra that in this, as in so many things, “you can’t fight the Fed”. The dominance of the US banking system and dollar liquidity, both of which are backstopped by the Fed, will give the American dollar unquestioned supremacy in the global financial system and capital markets indefinitely.

Others argue that “you can’t replace something with nothing”. By this they mean that even though China, Russia and other emerging market countries (as well as some rich nations such as Germany) would love to move away from dollar dominance, they have no real alternatives.

This desire is especially sharp in a world of increasingly weaponised finance. Consider recent moves by both Beijing and Washington to curb private sector involvement in each other’s capital markets. Yet, the euro, which represents about 20 per cent of global reserves, can’t compare in terms of liquidity and there are still big questions about the future of the eurozone.

The gold market is far too tight, as evidenced by the fact that it is now virtually impossible to buy the physical metal.

But there are economic statistics, and then there is politics. It’s telling that China has been a big buyer of gold recently, as a hedge against the value of its dollar holdings.

It is also testing its own digital currency regime, the e-RMB, becoming the first sovereign nation to roll out a central bank-backed cryptocurrency. One can imagine that would be easy to deploy throughout the orbit of China’s Belt and Road Initiative, as an attractive alternative for countries and businesses that want to trade with one another without having to use dollars to hedge exchange-rate risk.

This alone should not pose a challenge to the supremacy of the greenback, although it was enough to prompt former US Treasury secretary Hank Paulson, a man who does not comment lightly, to write a recent essay surveying the future of the dollar. But it isn’t happening in a vacuum.

The European Commission’s plan to bolster its recovery budget for Covid-19 bailouts by issuing debt that will be repaid by EU-wide taxes could become the basis of a true fiscal union and, ultimately, a United States of Europe. If it does, then I can imagine a lot more people might want to hold more euros.

I can also imagine a continued weakening of ties between the US and Saudi Arabia, which might in turn undermine the dollar. Among the many reasons for central banks and global investors to hold US dollars, a key one is that oil is priced in dollars.

Continuing Saudi actions to undermine US shale put a rift in the relationship between the administration of US president Donald Trump and Riyadh. It is unlikely that a future President Biden, who would probably follow Barack Obama’s pro-Iran stance, would repair it.

Even with oil prices this low, Dallas Fed president Robert Kaplan recently told me that energy independence remains “strategically important” to the US and that “there will still be a substantial production of shale in the US in the future”. Who will fill the Saudi void, then?

Very probably China, which will want oil to be priced in renminbi. A decoupling world may be one that requires fewer dollars.

Finally, there are questions about the way in which the Fed’s unofficial backstopping of US government spending in the wake of the pandemic has politicised the money supply. The issue here isn’t really a risk of Weimar Republic-style inflation, at least not any time soon. It’s more about trust.

Some people will argue that the dollar is a global currency and that its fortunes do not really depend on perceptions of the US itself. Certainly, events of the past few years would support that view.

But there may be a limit to that disconnection. The US can get away with quite a lot economically as long it remains politically credible, but less so if it isn’t.

As economist and venture capitalist Bill Janeway recently told me: “The American economy hit bottom in the winter of 1932-3 after [Herbert] Hoover lost all credibility in responding to the Depression and trust in the banks vanished with trust in the government.”

It could be that one day, trust in the dollar and trust in America will reconverge.

Deglobalization Will Hurt Growth Everywhere

Even if the United States turns a blind eye to deglobalization’s effects on the rest of the world, it should remember that the current abundant demand for dollar assets depends heavily on the vast trade and financial system that some American politicians aim to shrink. If deglobalization goes too far, no country will be spared.

Kenneth Rogoff

rogoff194_Yuichiro ChinoGetty Images_worldstockmarketcrash


CAMBRIDGE – The post-pandemic world economy seems likely to be a far less globalized economy, with political leaders and publics rejecting openness in a manner unlike anything seen since the tariff wars and competitive devaluations of the 1930s. And the byproduct will be not just slower growth, but a significant fall in national incomes for all but perhaps the largest and most diversified economies.

In his prescient 2001 book The End of Globalization, the Princeton economic historian Harold James showed how an earlier era of global economic and financial integration collapsed under the pressures of unexpected events during the Great Depression of the 1930s, culminating in World War II. Today, the COVID-19 pandemic appears to be accelerating another withdrawal from globalization.

The current retreat began with Donald Trump’s victory in the 2016 US presidential election, which led to tariff wars between the United States and China. The pandemic will likely have an even larger negative long-term impact on trade, partly because governments increasingly recognize that they need to regard public-health capacity as a national-security imperative.

The risk today of a debilitating 1930s-style overshoot in deglobalization is massive, particularly if the US-China relationship continues to fray. And it is folly to think that a chaotic, crisis-driven retreat from globalization will not introduce more – and vastly more serious – problems.

Even the US, with its highly diversified economy, world-leading technology, and strong natural-resource base, could suffer a significant decline in real GDP as a result of deglobalization. For smaller economies and developing countries that are unable to reach critical mass in many sectors and often lack natural resources, a breakdown in trade would reverse many decades of growth. And that is before considering the long-lasting impact of social-distancing and quarantine measures.

The late economist Alberto Alesina, a towering figure in the field of political economy, argued that for a well-governed country in the age of globalization, small can be beautiful. But today, small countries that lack a close economic alliance with a large state or union face huge economic risks.

True, globalization has fueled economic inequalities among the approximately one billion people who live in advanced economies. Trade competition has hammered low-wage workers in some sectors, even while making goods less expensive for everyone. Financial globalization has arguably had an even larger effect by increasing the profits of multinational corporations and offering new high-return foreign-investment instruments for the wealthy, especially since 1980.

In his 2014 bestseller Capital in the Twenty-First Century, Thomas Piketty cited rising income and wealth inequalities as evidence that capitalism has failed. But whom has it failed? Outside of the advanced economies – where 86% of the world’s population lives – global capitalism has lifted billions of people out of desperate poverty. Surely, therefore, an overshoot in deglobalization risks hurting far more people than it helps.

To be sure, the current model of globalization needs adjusting, particularly by greatly strengthening the social safety net in advanced economies and – to the extent possible – in emerging markets, too. But building resilience does not mean tearing down the entire system and starting over again.

The US has more to lose from deglobalization than some of its politicians, on both the right and the left, seem to realize. For starters, the global trading system is part of a compact whereby the US gets to be the hegemon in a world where most countries, including China, have a stake in making the international order work.

Aside from its political ramifications, deglobalization also poses economic risks to America. In particular, many of the benign factors that today allow the US government and American corporations to borrow vastly more than any other country are likely tied to the dollar’s role at the center of the system. And a wide array of economic models show that as tariffs and trade frictions increase, financial globalization decreases at least proportionately. This not only implies a sharp fall in both multinationals’ profits and stock-market wealth (which is probably fine with some), but also could mean a significant drop in foreign demand for US debt.

That would hardly be ideal at a time when the US needs to borrow massively in order to preserve social, economic, and political stability. Just as globalization has been a major driver of today’s low inflation and interest rates, shifting the process into reverse could eventually push prices and rates in the other direction, especially given what appears to be a lasting adverse supply shock from COVID-19.

Needless to say, there are other battles ahead requiring international cooperation, not least climate change. It will be even harder to motivate developing economies to rein in their carbon dioxide emissions if a global trade collapse undercuts the single strongest common incentive that countries have to maintain global peace and prosperity.

Last but not least, although COVID-19 has so far hit Europe and the US harder than it has most lower-income countries, there is still a huge risk of a humanitarian tragedy in Africa and other poorer regions. Is now really the right time to undercut these countries’ ability to fend for themselves?

Even if the US turns a blind eye to deglobalization’s effects on the rest of the world, it should remember that the current abundant demand for dollar assets depends heavily on the vast trade and financial system that some American politicians aim to shrink. If deglobalization goes too far, no country will be spared.


Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief economist of the International Monetary Fund from 2001 to 2003. He is co-author of This Time is Different: Eight Centuries of Financial Folly and author of The Curse of Cash.

Planning for the Post-COVID-19 Workforce: Four Scenarios




Significant uncertainty surrounds what the “new normal” could look like for firms beyond the COVID-19 crisis, particularly in terms of human capital.

But scenario thinking can help organizations better anticipate and adapt to dramatic changes, increase agility and resilience, and turn uncertainty into advantage, write Scott A. Snyder, Eric Skoritowski, Jarrad Roeder and Alex Libson in this opinion piece. Snyder is a senior fellow at Wharton and partner, digital and innovation, at Heidrick & Struggles. Skoritowski is engagement lead at Heidrick Consulting, and Roeder and Libson are principals at the firm.

As Edward Lorenz postulated in his 1963 paper on Chaos Theory, “Does the flap of a butterfly’s wings in Brazil cause a tornado in Texas? Substitute a bat in a Wuhan wet market for the butterfly and the spread of the coronavirus for the weather, and you have the same effect showing how fragile and uncertain our world is. In his efforts to model such phenomena, Lorenz realized that the imprecision inherent in human measurement could become magnified into wildly incorrect forecasts. Things are not much different in the business world.

There is a well-documented human tendency to be overconfident about our ability to forecast the future.

Even experts in a given field will generally be more certain than they should be about their own accuracy.

Furthermore, the COVID-19 pandemic is intensifying volatility, uncertainty, complexity, and ambiguity across all geographies and industries.

Scenario planning provides a framework for combatting natural human biases and challenging entrenched mindsets of leaders and organizations amid uncertainty and crisis situations.

While living in scenarios can be a humbling process, it helps to mitigate risks of overweighting the present, building plans based on a predictable future, and being excessively overconfident in forecasts.

Scenarios are more than just engaging stories; they are plausible “what ifs” that challenge prevailing beliefs and instill agility, adaptability, and resilience to plan for a world that is much more uncertain than we tend to acknowledge.

Summary of Four Future Scenarios and Human Capital Implications

In order to help leaders and organizations manage uncertainty driven by COVID-19, we have developed four scenarios for the future of human capital in the year 2023, with implications for companies operating in different industries as well as regions of the world.

Each scenario presents unique opportunities and challenges. And with those opportunities and challenges, winning operating models, organizational structures, leadership profiles, skills, talent and organizational cultures can be identified for each scenario.

1. Digital enclaves:

A world in which the global economy has bounced back, but social scar tissue from the pandemic persists, changing behaviors and lowering trust between people, institutions and countries.

In this scenario, winning organizations will be those that can restructure and retool their delivery models at pace with the recovering “low contact” economy while operating with a largely virtual employee base.

A generation scarred by the economic disruption and stay-at-home shutdown creates a more risk averse workforce, attracted to companies that offer job security and stability.

At the same time, the heads-down 9 to 5 jobs of the past are fast disappearing as more companies follow Twitter’s lead in encouraging remote work and further blurring the lines between work and home life.

Flatter and more nimble organizational structures developed in this future will require more engaged, empowered and capable employees, giving significant advantage to firms that have invested in training and development.

As many firms restructure to take advantage of new digital tools and ways of working, strong in-house training capabilities, specifically in the digital realm (e.g., to build widespread awareness and proficiency in data science and machine learning), will be needed to develop the workforce of the future.

Likewise, a strong developmental and people-focused culture will be key in attracting external talent into the fold while also maintaining connections between their virtual and physical workforces.

Chief Culture Officers emerge as important advocates to drive on-going engagement across a largely distributed employee base.

2. Tech-powered humanity:

A world in which the global economy has fully recovered and the COVID-19 protection measures have accelerated some significant tech advances in how we interact, but the pandemic has taught us the real value of human interaction.

In this scenario, winning organizations are those that have used the COVID-19 pandemic as an opportunity to learn and disrupt themselves through rapid innovation and digitization.

Businesses retool their operating models to reach new markets characterized by heightened consumer expectations and global connectivity.

Simplified organizational structures with less matrix, flatter hierarchies, and more network thinking enable companies to grow at pace with the surging global economy and technological innovation happening within industries.

Visionary and progressive leaders with essential business knowledge (e.g., M&A experience, venturing capabilities) take their organizations to new heights.

Furthermore, the influx of new roles such as Chief Data Officers and Chief Robotics Officers causes the market to place a premium on leaders that have a combination of technical and people skills – those who can understand emerging technology at a high level while also managing human relationships.

Organizations mandate baseline levels of digital fluency in areas such as artificial intelligence, but also make their employees feel valuable and essential through benefits, compensation, and incentives.

Physical spaces and talent hubs matter again for both collaboration and innovation, but are balanced with the freedom for employees to optimize their balance of virtual and physical work.

Employees are attracted to industries and companies that have strong mission and purpose and can provide relationship-driven work.

Company cultures that promote inclusion and diversity in background and thought thrive.

3. Growing divide:

A world in which a prolonged economic recession fractures trust between people, communities and institutions.

In this scenario, winning organizations are those that can cope with cratering and redefinition of entire industries in a necessarily virtual-first world.

Lean operating models that drive efficiency with lower-cost resources succeed as cost outweighs quality in most markets.

With limited capital available for new technologies, organizations will need to restructure to reduce waste and cost without relying on heavy investments in automation.

Companies will increasingly need to tap into the gig workforce or flex talent models to support strategic projects and urgent tasks while limiting fixed costs of full-time employees.

Thriving in this scenario will require execution-focused leaders with strong financial acumen (e.g., debt refinancing capability) and operational skills (e.g., Six Sigma).

While a more digital workforce will be needed in this future, the high digital divide and limited resources for people development will underscore the importance of cultivating external networks and strong recruiting capabilities to bring in top digital talent.

Company cultures that promote empathy and mental health (e.g., through virtual counseling, mentorship) will also help attract and keep top talent in this harsh business environment.

Chief Medical Officers become a key part of executive teams in all companies to help manage the growing health risk in the employee base.

Using this type of scenario analysis to inform our human capital strategy can help leaders know where to commit and where to monitor/adapt as needed based on which future unfolds.

4. In this together: A world in which the economy struggles to recover from a long lockdown, but families, communities and NGOs have come together to support one another.

In this scenario, winning organizations are those that can engender trust in their brands and missions amidst a faltering economy. Companies revamp their operating models to facilitate ecosystems and partnerships (e.g., industry associations, continental trade ecosystems, government relations).

Organizational structures promote efficiencies but also place high value on human interaction.

For instance, many companies utilize gig, flexible, and seasonal workers for specialized projects or to meet increasing business demands. Companies seek empathetic and courageous leaders to instill purpose and guidance in their mission and across their workforce.

The market places a premium on “soft skills” (e.g., networking abilities, negotiation tactics) while requiring a baseline digital fluency in areas such as remote work and collaboration.

Companies and employees value breadth of skills and experiences over depth in industry-specific knowledge. Portfolio careers increase, as many employees hold more than one job or make radical career changes.

The interpersonal cultures of firms – how employees communicate and look after each other – are now highly valued. Company cultures that promote social impact and work-life balance that allows employees to spend valuable time with family and friends thrive.

Moving from Scenarios to Decisions

Looking at the types of organizational strategies critical to not only survive, but also thrive in each scenario, it is apparent there are certain “no regret” strategies that apply across scenarios such as developing digital leaders or the ability to recruit, on-board, and manage virtual workers. There are also scenario-specific strategies where we want to maintain some level of flexibility through strategic options or small-scale experiments to be ready.

An example could be deploying more pervasive health monitoring solutions for employees or retooling the use of physical spaces or employing cloud-sharing models to reduce dependence on physical spaces while keeping the option to re-open and scale up in a “Tech-powered Humanity” future. Using this type of scenario analysis to inform our human capital strategy can help leaders know where to commit and where to monitor/adapt as needed based on which future unfolds.

To apply this in your own organization:

• Stress Test Your Assumptions

– Use the four scenarios for the future of human capital to stretch your organization’s thinking about possible paths the future might take. Stress test your current re-entry plans and human capital initiatives to understand how well they would perform under each scenario. Identify areas where you might increase flexibility in your portfolio to improve readiness for multiple futures. The figure below shows the types decisions that should be challenged using a scenario-planning framework.

•Build Your Playbook

– Engage a team of colleagues to live in each future scenario. If you knew with 100% certainty that your business environment in 2023 would look like this scenario, what decisions, plans and investments would you start making today? Where should you potentially rethink or re-imagine parts of your organization or operating model to position for success on the other side of the crisis? Build your organization’s playbook for each future scenario.

• Prioritize Initial Steps

– As you build a playbook for each scenario, you may notice a subset of actions or investments that show up in all four playbooks. If your organization would take these actions in each of the four extremely different future scenarios, those likely represent no-regret investments that you can confidently pull the trigger on today. For those initiatives that are needed in only one or two scenarios, think in terms of options to allow you to scale in that future without wasting time and resources in others.

• Monitor Your Environment

– The sooner your organization can see which future is emerging, the sooner you will know which playbook to act on. Start by identifying the key signals or signposts that could tell you when you’re headed toward each scenario and tap into the parts of your organization with visibility on those indicators. Establish feedback loops with your front lines to help contextualize the weak signals they see in the market everyday and use them as a strategic radar to enhance your organization’s foresight and visibility in a highly uncertain world.

Given the significant uncertainty around what the “new normal” could look like beyond the COVID-19 crisis, we need to take a page from Edward Lorenz and realize that the next weak signal of small change we detect could be a sea change that shifts our market and planet dramatically.

Using scenario thinking can help us better anticipate and adapt to the dramatic shifts we may see ahead, and help our organizations turn uncertainty into advantage.

Why There Won’t Be a V-Shaped Recovery

By John Pangere, CFA, Strategic Investor



Benjamin Roth had one job to do.

Creditors hired the young attorney from Youngstown, Ohio to collect a bad debt. He’d have to track down the delinquent borrower and wrestle $50 from him.

Business was bad. Money was tight. Everyone was just trying to get by.

Roth, like many other World War I veterans, had a family to support. He did what he had to do to survive during the Great Depression.

Times were so bad, debt collectors like Roth felt bad chasing down delinquent borrowers.

Nobody escaped the Depression. Each sign of hope faded into more suffering. Things got worse and worse until people thought they’d never get better. That’s what finally marked the bottom.

This story comes from The Great Depression: A Diary by Benjamin Roth, which gives us a glimpse of life during the 1930s. Roth’s son Daniel decided to publish parts of his father’s diary after the 2008 financial crisis hit.

More importantly, though, it’s a window into a point in history that almost no one today has experienced. It also serves as a guide for today, telling us what to do – or more importantly, not to do – next.

Cheap Can Get Cheaper

Roth survived the Great Depression. However, the man Roth had to collect from wasn’t in good shape. As Roth put it on December 14, 1931:

The record shows that in 1930 – over a year after the big stock crash – this man invested over $100,000 in common stocks at what then seemed to be bargain prices. The total value today at market prices is $30,000.

Just six months before, Roth wrote:

Immediately after the 1929 crash, the speculators rushed in to buy “bargains” but were badly mistaken, because the market kept going down and down even though industrial leaders kept on assuring the people that everything was fine and the worst was over.

If this sounds familiar, it should.

The 1929 stock market crash didn’t just happen overnight. It was a build-up of excesses from the Roaring Twenties.

When the bubble finally burst, not everyone recognized it.

Even though plenty of investors lost big on Black Monday (October 28, 1929), it wasn’t the initial crash that wiped them out. The Dow lost over 40% of its value from its highs.

Then, investors started buying the dip.

It was the “bargain” hunting of the ensuing months that signaled the death blow.

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If you look at the above chart closely, the buy-the-dip crowd thought boom times were back by April 1930. Then things changed. It wasn’t until July 1932 that investors finally gave up.

Just like the man that went all-in in 1930, far too many people today are “buying the dip.” And with a rebound of 37% on the Dow as I write, it’s looking like a great move:

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However, we don’t know what will happen tomorrow – let alone in the months ahead. It might feel good right now.

But ask yourself, “Does a rising stock market reflect reality?”

In 1930, investors thought, “Yes.” Then, they went bust.

At the end of the day, it doesn’t matter whether you agree with the mass shutdowns. The damage is done. Now’s the time to think about what happens next.

Where Does a Strategic Investor Go From Here?

The strategic investor doesn’t trade with the crowd. He sits and waits, looking for the right time to pounce.

Today is not that time.

Keep in mind, the 1929 crash didn’t cause mass unemployment. Instead, it uncovered problems the Roaring Twenties had created, like buying with debt, trading on margin… and no one thought things would come crashing down.

First, consumers cut back on spending. Goods started piling up. Then, manufacturers started cutting jobs.

As more and more people lost their jobs, there was less and less spending. This cycle continued for years. We could see a similar cycle today.

However, this time is a little different. First, employers started cutting jobs. Consumers cut back on spending. Goods started piling up. Employers cut even more jobs.

For instance, consumer spending in the U.S. accounts for almost 70% of the entire economy, according to the U.S. Bureau of Economic Analysis. Of that, about 40% is retail sales.
Recently, we got a glimpse of what happens when the world shuts down. The numbers were catastrophic.

Total retail sales fell 8.7% in March. The April numbers were even worse. Retail sales fell a record 16.7%. It was the worst drop-off in sales since the Commerce Department started tracking the number 30 years ago.

At the depths of the 2008 financial crisis, retail sales only fell about 4%.

Today, over 40 million people are out of work since the start of the shutdowns. That’s more than enough to wipe out all job gains over the past decade.

Businesses aren’t running. No one is traveling. Spending is all but gone except for the most basic goods.

Heart of the Economy

At the same time, politicians and talking heads are optimistic that when they signal the all-clear, things will go right back to normal. They talk of a “V”-shaped recovery. But that can’t happen unless people start spending again in force.

No job. No paycheck. No spending.

Then goods start piling up and employers cut even more jobs. There’s no telling how long this goes on.
This isn’t to say we’re headed for another depression. Every downturn is different. No one knows how all of this will end until it’s over.

However, we doubt all the jobs lost will come storming back in the months ahead.

According to the Small Business Administration, small businesses with fewer than 500 employees make up about 45% of GDP and nearly 50% of jobs. When a number of these businesses fail to reopen because they run out of cash, there won’t be a job for many people to go back to.

When you stop the heart of the economy from beating, it’ll take some time before it gets pumping again.

The point is, the economy had a heart attack. Today, it’s on life support.

However, one thing we can say for certain is, this crisis will change consumer behavior. Scores of people racked up tons of debt over the past decade. They used that debt to buy the latest smartphone, TV, or fully loaded car. They took the phrase “Keeping up with the Joneses” to a whole new level.

Now, they’re desperate to find cash. The scars of this crisis will last for years, just like they did during the Great Depression. When this is over, most Americans will look to save more than they spend. They won’t ever want to be dependent on debt again.

There will be a time to buy stocks.

But for now, it’s more important to be patient – and strategic – and pick your spots carefully.