CONCURRENT DEFLATION AND HYPERINFLATION WILL RAVAGE THE WORLD
by Egon Von Greyerz, Gold Switzerland:
FLATION will be the keyword in coming years. The world will simultaneously experience inFLATION, deFLATION, stagFLATION and eventually hyperinFLATION.
I have forecasted these FLATIONARY events, which will hit the world in several articles in the past. Here is a link to an article from 2016.
With most asset classes falling rapidly, the world is now approaching calamities of a proportion not seen before in history. So far in 2022, we have seen an implosion of asset prices across the board of around 20%. What few investors realise is that this is the mere beginning. Before this bear market is over, the world will see 75-90% falls of stocks, bonds and other assets.
TRUTH LIVES on at https://sgtreport.tv/
Since falls of this magnitude have not been seen for more than three generations, the shockwaves will be calamitous.
At the same time as bubble assets deflate, prices of goods and services have started an inflationary cycle of a magnitude that the world as whole has never experienced before.
We have seen hyperinflation in individual countries previously but never on a global scale.
Currently the official inflation rate is around 8% in the US and Europe. But for the average consumer in the West, prices are rising by at least 25% on average for their everyday needs such as food and fuel.
A CALAMITOUS WORLD
So the world is now approaching calamities on many fronts.
As always in periods of crisis, everybody is looking for someone to blame. In the West most people blame Putin. Yes, Putin is the villain and it is his fault that food and energy prices are surging. Nobody bothers to analyse what or who prompted Russia to intervene, nor do politicians or main stream media understand the importance of history, which is the key to understanding current events.
In troubled times, everyone needs someone to blame. Many Americans will blame Biden who has both lost his grip on most US events as well as his balance. In the UK, the people blame Boris Johnson who has lost control of Britain since Partygate. In France the people are blaming Macron who just lost his majority in parliament, and in Germany people blame Scholz for sending money to Ukraine for weapons and money to Russia for gas.
This blame game is only just beginning. Political turmoil and anarchy will be the rule rather than the exception as the people will blame the leaders for higher prices and taxes and deteriorating services in all areas.
No country will be able to provide social security payments in line with galloping inflation. Same with unfunded or underfunded pensions, which will fall dramatically or even disappear totally as the underlying asset base of stocks and bonds implodes.
As a consequence, many countries will be anarchic.
Deflationary implosion of investment markets
Stocks
The everything bubble has come to an end. It was only possible due to the benevolence of central banks in creating the most perfect manipulation of the instruments that they control, namely money printing and interest rates.
The result of free money has meant a trebling of global debt in this century to $300 trillion at virtually zero interest cost.
This has been real Manna from heaven for investors, both big or small. Everything investors touched went up and at every correction in the market, more Manna was produced.
For investors it was always “Heads I win, Tails I win.”
This Shangri-La of markets makes everyone an investment guru. Even a fool became rich.
Speaking to investor friends today, they might be slightly unsettled but see no reason why the long term bull trend won’t continue. As far as investors are concerned, Greenspan, Bernanke, Yellen and Powell have been their best friends and the Fed’s main purpose is to keep investors happy and rich. Therefore most investors are sitting tight in spite of 20% falls or more across the board. They will regret it.
So most investors are relying on being saved yet another time and don’t realise that this time it is really different.
As we know, it is NOT the fact that central bankers have done a volte face (about turn) in raising rates and also reversed quantitive easing into tightening which has led to investment markets crashing.
No, these geniuses running the Central Banks can never see anything coming before it is too late. Inflation hitting the world with a vengeance was clear to many of us for quite a while–but obviously not to the people running monetary policy. They are clearly not paid to see anything coming before it has actually happened.
The chart below shows the Dow since 1970. In 1982, the current 40 year bull market started. Since then investors have seen a dramatic 46X increase in their stock portfolios.
There have been four frightening corrections of between 35% and 55%. I remember well the first one in October 1987. It was Black Monday and I was in Tokyo for the listing of Dixons in Japan, the UK FTSE 100 company I was Vice-Chairman of. The market crashed 23% on October 19th and over a 12 day period the Dow was down 40%.
Not the best timing for a listing on the Tokyo stock exchange😩.
If we look at 1987 in the chart below, we can see that the massive fall we experienced at the time is hardly visible.
Another very important technical factor on this chart is the bearish divergence on the Relative Strength Index – RSI. Since 2018, I have pointed out that the RSI on this quarterly chart has made lower highs since 2018 as the Dow has made new highs. This is a very bearish signal and will inevitably result in a major fall of the Dow as we are now seeing.
My long standing forecast of a 90% fall in stocks in real terms has not changed. This fall is no bigger than the 1929-32 one with dramatically worse conditions today both in debt markets and in the global magnitude of the bubbles . Just a return to the 2002 and 2009 lows would involve an 80% fall from the top.
The Wilshire 5000 representing all US stocks has lost $11 trillion or 23% since the beginning of 2022. See chart below. Additional trillions have been lost in bond markets.
Bonds
The 39 year bull market in bond prices (bear market in interest rates) has now come to an end. In fact it ended in 2020 at 0.5% having fallen all the way from 15.5% in 1981.
I expect rates to surpass the 1981 level as the biggest debt market in history implodes.
Many debtors, both sovereign and private will fail and bond rates will reach infinite levels as bond prices collapse.
This implosion of bond markets will obviously have major repercussions for the financial system and markets with banks and other financial institutions defaulting.
After more than a decade of long struggle to raise inflation up to 2%, central bankers like Yellen and Lagarde got the shock of a life time with official inflation rapidly surging to over 8% with real inflation probably around 20-25% for most people.
This increase in inflation was such a shock to the Bank heads that they were in denial for many weeks, calling it transitory.
These Fed and ECB chiefs have this uncanny ability not to see anything that they haven’t projected. And since they never project one single market trend correctly, they will inevitably always take the wrong road.
They would be more successful it they just rolled the dice. Over time they would then at least have a 50% chance of being right. Instead they have a perfect record of being 100% wrong.
As I state over and over again, central banks should not exist. The laws of nature and supply and demand would do a much better job at regulating markets. Without central banks and their manipulation, markets would be self correcting rather than the extreme peaks and troughs that the banks create.
The absurdity of central banks’ disastrous manipulation is clearly exposed in credit markets. We have for years had credit surging with rates being around zero or negative.
It is obvious to any student of economics that high demand for credit would lead to a high cost of borrowing. These would be the obvious consequences of supply and demand in a free and non-manipulated market.
The inverse would clearly also be the case. If there is no demand for credit, interest rates would come down and stimulate demand.
