Economic outlook

[dado potato]

Charles Hugh Smith's economic outlook can be summarized as "Toppling Dominoes of Depression".

In Smith's sequencing of collapse:
1. Pandemic triggers mass layoffs. Uncertainty is the new normal. Capital and trade flows are disrupted.
2. High-cost small business fold, money velocity collapses, as savings soar.
3. Zombie corporations rush to borrow billions, delaying their insolvency.
4. Service sector dependent on top 5% household spending implodes. Technical and managerial layoffs surprise "the protected class".
5. State/local government tax revenues plummet ... local government employment slashed.
6. Loan defaults and bankruptcies explode higher, triggering catastrophic losses in banking and derivatives. (Smith might be thinking of Collateralized Loan Obligations, owned by Insurance Companies and pension funds? End-game for zombie corporations?)
7. "Safe" sectors crushed: tech, health care, higher education, finance.

http://www.oftwominds.com See blog, July 31, 2020

The metaphor of falling dominoes may distort the reality of the next few years of value destruction. I think Smith has left out another type of severe loss, which I expect to occur, as the "Golden Age of Fraud" is detected by external auditors. And I think there will be further losses due to arson, looting, vandalism.

So, I hope for the best, but prepare for the worst.

[Yppej]

Thanks for posting dado. I think people have overemphasized the health consequences of the pandemic and not paid enough attention to the economic impact. I posted in the coronavirus thread that the number of people starving to death in the Third World is expected to double due to virus related shutdowns. Currently I am nearing the end of Anne Frank Remembered: The Story of the Woman Who Helped To Hide the Frank Family. As they await liberation the Dutch are starving. It is horrific. When people's blood sugar crashes midafternoon and they say, "I'm starving" because they want a candy bar, no you're not starving.

For a virus with around a 1% fatality rate we have taken drastic action. And to those who say the virus causes long-term medical issues in some people, not as long-term as being dead of starvation.

[frugal-one]

Charles Hugh Smith's economic outlook can be summarized as "Toppling Dominoes of Depression".

In Smith's sequencing of collapse:
1. Pandemic triggers mass layoffs. Uncertainty is the new normal. Capital and trade flows are disrupted.
2. High-cost small business fold, money velocity collapses, as savings soar.
3. Zombie corporations rush to borrow billions, delaying their insolvency.
4. Service sector dependent on top 5% household spending implodes. Technical and managerial layoffs surprise "the protected class".
5. State/local government tax revenues plummet ... local government employment slashed.
6. Loan defaults and bankruptcies explode higher, triggering catastrophic losses in banking and derivatives. (Smith might be thinking of Collateralized Loan Obligations, owned by Insurance Companies and pension funds? End-game for zombie corporations?)
7. "Safe" sectors crushed: tech, health care, higher education, finance.

http://www.oftwominds.com See blog, July 31, 2020

The metaphor of falling dominoes may distort the reality of the next few years of value destruction. I think Smith has left out another type of severe loss, which I expect to occur, as the "Golden Age of Fraud" is detected by external auditors. And I think there will be further losses due to arson, looting, vandalism.

So, I hope for the best, but prepare for the worst.

I don't say I don't agree with some of this but Zero Hedge and some of the other places this guy writes for are conspiracy theory sites. Just saying.

ETA: How are you preparing?

[dado potato]

the number of people starving to death in the Third World is expected to double due to virus related shutdowns.

The locusts are eating well, however.

The World Bank recently published a brief on food insecurity. Not all who experience food insecurity will succumb to starvation, but the number is staggering: " 265 million people could face food insecurity by the end of 2020".

http://www.worldbank.org/en/topic/ag...y-and-covid-19

[flowerseverywhere]

Thanks for posting dado. I think people have overemphasized the health consequences of the pandemic and not paid enough attention to the economic impact. I posted in the coronavirus thread that the number of people starving to death in the Third World is expected to double due to virus related shutdowns. Currently I am nearing the end of Anne Frank Remembered: The Story of the Woman Who Helped To Hide the Frank Family. As they await liberation the Dutch are starving. It is horrific. When people's blood sugar crashes midafternoon and they say, "I'm starving" because they want a candy bar, no you're not starving.

For a virus with around a 1% fatality rate we have taken drastic action. And to those who say the virus causes long-term medical issues in some people, not as long-term as being dead of starvation.

I saw you wrote elsewhere that money spent on keeping all these old people alive could solve much of the global starvation problem.
Guess what? If tomorrow I get Covid and end up at the ER, I could be deemed too old to treat. Don’t think for one minute all the money saved will end up helping anyone starving in a third world country eat. Some insurance executive or hospital executive or even a crony of our President might get more money via bonuses or contracts, but you are dreaming if Any money would go to starving children who are not American, white and Christian. A real trifecta. Clean out the old people, those of color and the immune compromised. Remember foreign aid cuts? One of the rallying cries of Trump rallys.

Dado P, I’m not sure if the scenario would go quite like that, but your list is food for thought. Regardless it doesn’t look good.

[dado potato]

I don't say I don't agree with some of this but

Anyone, myself included, is free to disagree with some or all of Smith's prediction of an economic depression. If you are saying Smith subscribes to an invalid conspiracy theory, please fill me on on where you believe he is in error.

Preparing for a depression:
Sell securities.
Secure a cash reserve.
Eliminate debt.
Put physical gold and silver in the safe deposit box.

[SteveinMN]

Preparing for a depression:
Sell securities.
Secure a cash reserve.
Eliminate debt.
Put physical gold and silver in the safe deposit box.

You forgot to list "Acquire more firearms."

[jp1]

Charles Hugh Smith's economic outlook can be summarized as "Toppling Dominoes of Depression".

In Smith's sequencing of collapse:
1. Pandemic triggers mass layoffs. Uncertainty is the new normal. Capital and trade flows are disrupted.
2. High-cost small business fold, money velocity collapses, as savings soar.
3. Zombie corporations rush to borrow billions, delaying their insolvency.
4. Service sector dependent on top 5% household spending implodes. Technical and managerial layoffs surprise "the protected class".
5. State/local government tax revenues plummet ... local government employment slashed.
6. Loan defaults and bankruptcies explode higher, triggering catastrophic losses in banking and derivatives. (Smith might be thinking of Collateralized Loan Obligations, owned by Insurance Companies and pension funds? End-game for zombie corporations?)
7. "Safe" sectors crushed: tech, health care, higher education, finance.

http://www.oftwominds.com See blog, July 31, 2020

The metaphor of falling dominoes may distort the reality of the next few years of value destruction. I think Smith has left out another type of severe loss, which I expect to occur, as the "Golden Age of Fraud" is detected by external auditors. And I think there will be further losses due to arson, looting, vandalism.

So, I hope for the best, but prepare for the worst.

I don't necessarily disagree with any of this as a realistic prediction except that the federal reserve will do everything in their power, and make up new powers if necessary like they did in 2008/2009 to stave off the worst of it for invetors. Will they be as successful this time around? Who knows. Also, Charles Hugh Smith is generally a doom and gloom kind of guy and has been predicting disaster for a long long time. Eventually he'll probably be correct, but the market can be irrational a lot longer than any of us can remain solvent. And sometimes things just change structurally and expected events never occur. For example, before the great depression it was standard for stocks to pay higher dividends than bonds since bonds promised the return of principal while stocks did no such thing. During the years after WWII a not insignificant number of investors remained in bonds waiting for stock dividends to get back to where they "should" be. Anyone following that plan would still be waiting today and would have missed out on 75 years of capital gains from owning stocks.

[frugal-one]

Anyone, myself included, is free to disagree with some or all of Smith's prediction of an economic depression. If you are saying Smith subscribes to an invalid conspiracy theory, please fill me on on where you believe he is in error.

Preparing for a depression:
Sell securities.
Secure a cash reserve.
Eliminate debt.
Put physical gold and silver in the safe deposit box.

Added self protection "tools"

I have done all of this plus topped off all food and goods supplies. I think it will get worse as time goes by. Plus already seeing signs where things are temporarily unavailable and metal/tin can shortages, not to mention, trump not allowing Mexicans across the border to pick produce. This does not bode well.

[dado potato]

There is a crunch on apartment renters, a few months in arrears on their rent.

Reuters 7/29/2020 "US Renters Owe $21.5 Billion in Back Rent".

I note that some credit unions (6 CUs in Washington State, for example) are making interest-free loans to members who are behind in their rent because of COVID-19. Typically the unsecured loan has a term of 1 year, and the borrower has 100 days before the first monthly payment is due... so the landlord gets paid, and the tenant has relief for 100 days. In the case of Canopy CU in Spokane, I understand that the maximum loan is $1,000.

Bravo, credit unions. There are other lenders who also may be willing to make loans to renters who are behind, but they charge a significant rate of interest.

I doubt that the $21.5 billion will be fully financed. There will be distress.