Excerpts From Strategic Intelligence Lifetime Subscribers section behind paywall by Jim Rickards:
The Great Depression of 2020 Has Begun. Your Roadmap To Recovery:
Forget 2008.
For that matter, forget every recession, financial panic or crisis in your lifetime. Almost no one alive today has a living memory of the market crash of 1929, but even that does not capture the full magnitude of what happened to the U.S. economy in the past three months.
It is unprecedented in U.S. economic history.
We all know the reason. The U.S. economy was locked down to prevent the spread of COVID-19, which was unleashed on the world from Wuhan, China, late last year.
In this edition of Strategic Intelligence, we leave the origin of the virus and the pandemic to one side and focus on the consequences. The Great Depression of 2020 is as dramatic and disturbing as the pandemic itself.
In particular, gold has been a superstar, up 75% since the start of the new bull market in December 2015 and up 35% in the past year alone. We expect this rally in physical gold to continue and for performance in gold mining shares to do even better.
Cash is another star asset. It’s essential to preserve wealth and can even be your best-performing asset (in real terms) during periods of deflation, which we expect.
Following is an incisive view of the Great Depression of 2020. We will be with you every step of the way as we continue through this crisis with specific actionable recommendations for financial survival and even spectacular gains as the new depression unfolds.
Every Job Loss Is an Individual Trauma
The U.S. lost over 21 million jobs in March and April 2020. The May job losses (not shown on Chart 1) will add another 17 million to the unemployment rolls. (June now 45 Million UI applications running 1.5 Million per week and slowing dropping each week but above White House happy talk estimates) In total, the U.S. has lost over 45 million jobs in just three months. Total employment is back to levels last seen in the 1990s. It’s as if the economy had been on hold for three decades. It took only three months to wipe out the job gains of the last 30 years. Reports of continuing UI claims of 21 Million beggars belief.
Small and medium-sized enterprises (SMEs) contribute over 40% hof GDP and provide almost 50% of total employment. By gutting these jobs, we have gutted the U.S. economy in ways that may take a decade to repair.
Almost overnight, the Great Depression of 2020 slammed the LFPR (Labor Force Participation Rate) down to 60%, about where it was in 1970. Again, it was as if the U.S. economy had been transported in a time machine to where it was 50 years ago. A half-century of gains for women, minorities and the disadvantaged were wiped out in the blink of an eye.
Many of the businesses that closed for the lockdown will never reopen. It’s not a question of lockdown orders. They’re broke and out of business. The owners may start a new business someday, somewhere, but the old business is gone.
The assets are up for sale at fire-sale prices. The employees will never get their old jobs back. The lease is broken and the storefront is vacant. That’s reality for much of America.
Big business is not immune. We’ve already seen bankruptcies by household names like J.C. Penney, J. Crew, Neiman Marcus, Pier 1 Imports and Hertz. They will not be the only ones. You can expect at least one major bankruptcy coming from the airline sector. Even giants like Boeing are not immune.
Bankruptcy does not mean the company goes away. Some do (like Pier 1) because they are put into liquidation. But many companies are put into “reorganization”-style bankruptcies.
This generally means equity holders get wiped out, bondholders get a reduced claim (with some equity in lieu of principal), some stores or locations are shut, some assets are sold, leases are broken or renegotiated and workers are rehired in smaller numbers with reductions in pay and benefits. The company survives, but many landlords, stockholders and employees do not — their claims or jobs are wiped out.
The Great Depression of 2020 has just started. The big-name bankruptcies are popping up almost daily. There’s every reason to believe stocks will end up much lower before all is said and done.
Above all, there is uncertainty. Our expectation is that economic growth will grind lower before turning around. When it does turn around the recovery will be slow and uneven. We may not reach 2019 levels of output again until 2022 or later.
Stocks have not hit bottom. We may see the S&P 500 fall to 1,700 before the market turns around. That would be an almost 50% decline from the mid-February peak. Not as bad as the first Great Depression, but still one of the worst stock market drawdowns since the 1930s.
How to Protect Your Assets:
At a minimum, investors should reallocate their portfolios to include about 10% in gold or gold mining stocks and 30% in cash. A rise in the dollar price of gold is really a devaluation of the dollar, which is needed to promote growth in the U.S.
Cash can be your best-performing asset in real terms as deflation takes hold. Deflation means your cash is more valuable in real terms even as debt becomes more onerous in real terms.
For your remaining stock portfolio, the key is selectivity. Even in down markets, some stocks do well and outperform. During the first Great Depression, shares in Homestake Mining, which operated a huge gold mine in Lead, South Dakota, soared.
Jim at StratIntel is not a gloom and doomer just a realist...
Q2 and Q3 Earnings will be a horror show - all the zombies buying back stock with 0% Debt will wipe out their balance sheets and become technically bankrupt without further Treasury and Fed bailouts.
After the Fed pumps wave 5 back to a technically valid double top to finish the 5 Wave larger B wave we will enter larger Wave C down in a slightly slower in time 3 impulse zig zag C Wave similar to the Large A wave down - to a target 1700 to 2000 S&P range. Unless the Fed & Treasury pulls a multi Trillion bunch of rabbits out of their mysterious hats.
Since subwave 2 of the first major Retracing B wave was extremely fast, we expect the rules of alternation to extend wave B subwave 4 to kickin slowly trading sideways during the remaining June July summer covid cabin fever Vacation period to a target of 3890 a .38 retrace of B subwaves 1 thru 3.
A technically valid B wave subwave 5 high target with the Fed pedal to the metal is 3400 which will top turn around election day to give Trump 401K bragging rights into a relative impulsing down Major C to 1700 to 2000 SPX or "S&P Cash". Admin Fed/Treasury wizards don't expect this correction till Q3 21 to Q2 22 timeframe. Bearing in mind the stone cold sober Rickards Strategic Intelligence Report above...
Takeaways... Go to cash at S&P SPX 3400 to preserve gains and use no more than 20% of trading cash for Shorting S&P to 1700 to 2000 range or SPY Put Options at least 120 day puts to 200 to 170 range always take Put and Call Profits with no less than 2 weeks till expiration. I like to use 5% SPY trailing stop Loss to capture impulsing waves profits... Even if stopped Out on these I keep 30% of puts as fliers with no trailing stops to catch bonus Fib final 38% moves while using trailing stops to lock in first 62% moves.
