Is it the End of the World yet?

March 19, 2020

My Dear Reader,

Has the potential recession got you a little worried? It’s not really a question at this point of whether or not people will lose their jobs, the hotel and airline industry is being raked over the coals through no fault of their own. It’s disappointing because behind every unemployment line is somebody with a family and responsibilities. I don’t think we realize just how many people are going to be crushed by the Hilton Hotel closing announcement, nor how people are going to be affected by the airline mass-flight cuts. This will translate into other industries as more people will temporarily have to file for unemployment, and even as businesses recover the access to capital is going to be essential.

Speaking of access to Capital, there’s going to be an awful lot of paper floating around for the time being. As money has gotten cheaper, it’s also become necessary in order to keep the doors open. The question is whether or not people will immediately rush back to their favorite businesses, or how long consumer confidence will stay low, which of course will affect bond rates and potentially a great many defaults. The best article outlining this was published just a few days ago by Sovereign Man Investing. Take a look for yourself:

“Investors around the world ignored this for months, completely underestimating the massive, worldwide economic impact the virus would have. Even now, after one of the worst stock market crashes in history, people are still woefully underestimating the effects. And I’m not talking about the stock market (though there could easily be more losses ahead). I’m talking about something far more serious: banks.”

The author goes on to conclude with a reminder that there is 250 trillion dollars worth of global debt right now, and Banks only have about 10 trillion of capital Worldwide. We’ll explore more of this tomorrow, but just like at the end of The War of the Worlds, A small little virus could have toppled this whole great structure.

To your Creation and Potential,
Kevin Prendiville