Of Course This is Financial Crisis

by | Mar 12, 2020 | General | 0 comments

It is simply laughable to listen to CNBC. “This is not financial crisis.” ” We might not be going into recession.” Of course, this is a financial crisis, and of course, we are going into recession. And this is not because of the Coronavirus. It is because of low interest rates that caused the individuals and corporations to take on huge amounts of debt. The low interest rates created an economy that cannot withstand a significant shock. Coronavirus is simply a pin that pricked the bubble.

Eventually, the Coronavirus will be dealt with. In the meantime, what happens to the small businesses that cannot pay their bills because their revenues evaporated? What happens to the hotels that have gigantic mortgages with monthly payments? Fed cannot help everybody. The layoffs will be big.

The Fed just announced $500B asset purchase program. At first, the market recovered, and they it plunged again. It is not enough. The Fed is screwed. There will be so much QE that none of us ever though was possible.

The people that understand what is coming are the gold bugs that have been losing money for years. They know gold will absolutely explode. Right now everybody is selling everything including gold.

This will change. Gold miners are going to be the only companies with improving fundamentals. Their costs just went down with oil collapse. Their revenue will explode. Their assets are going to be worth a lot of money. Right now nobody cares. People are selling miners with everything else.

If you think that the Dow is done going down, then think again. I am waiting for 10,000. Then, I will get interested. Right now no thank you. The businesses are only starting to get their asses kicked. The quarantine behaviour is just beginning. If the economy is healthy with low debt levels, then it can sustain it. But the economy that is sick with a shit load of debt, it extremely vulnerable.

The same goes for Coronavirus. If you are healthy, then you will likely be ok. If you have preexisting conditions, you might not be ok. Our economy has a lot of preexisting conditions that the gold bugs have been warning about and everybody was laughing at them.

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About Mariusz Skonieczny

Mariusz Skonieczny is the founder of Classic Value Investors.