The Chinese are a month ahead of Westerners, who have only recently begun to relax anti-pandemic measures. Under certain conditions, they offer us a glimpse into the future. So what do we learn? How they actually started going to work, but then they immediately returned home . They are still reluctant to go out. The traffic outside the peak hours, ie if we exclude the route home - work, work - home, has dropped 45%.
The bottom line is that we don't have to equate going back to work with normalcy.
First of all, not everyone will return to work. We have seen how unemployment has skyrocketed in the United States (where it provides the most direct and detailed data) in other countries as well. Industrial production in the United States in April fell more than had fallen in August 1945 , as shown in Bloomberg's chart below.
Even if half of the unemployed, due to the pandemic, find a job again immediately, there will be a huge gap in disposable income for consumption. There is no way that GDP and growth will not be affected. The Bank of England claims that this is the biggest recession of the last 300 years . Brazil is expected to face the biggest economic downturn since 1900. We do not know if the forecasts will turn out to be excessive, but no one can rule out the possibility that they will come true.
Of course, as we have mentioned many times from this column, another economy and another stock market. These two have long taken a different path, with the deviation constantly growing. The catalyst that has broken the cohesion in their course is nothing but the policies of the Central Banks.
We have only 2 months since the deterioration of the economic climate began and we are witnessing the largest monetary stimulus ever in any nation on the planet. The balance sheets of the Central Banks, if they have not escaped from any control, certainly have no precedent. Debts, the same.
The chart below shows the holdings of the European Central Bank of Italy (16%) with the white line . The blue line shows us how much it owns from the total European bond market (42.8%). Japan's central bank now has a stake in Japanese government bonds. Of course, BJ had started years ago (purple curve). The orange line reveals the percentage of FED holdings in US government bonds (21%), where it has been moving more aggressively lately than anyone else.
Restrictive measures have also hit the US mortgage market. Without exaggeration, it was on the verge of collapse , as they caused a sharp drop in the value of high-performance mortgages. The reason; Doubt whether the loans will be able to be repaid properly.
Tough situation; Not so much. You just shout for the cavalry (FED) to intervene. It is no exaggeration to say that the FED is currently the largest real estate owner in the world. It has in its possession as a guarantee 1.4 trillion. mortgages, while it is obvious that it is not going to stop here ( https://fred.stlouisfed.org/series/WALCL ).
The Central Banks have not only discovered the money tree but huge areas of money trees. The trick is simple. By printing money, you create wealth, prosperity, growth. Or is it not so simple after all? In any case, this is not capitalism. What do we want the markets to do, if investors are far away, to replace the central bankers by generating money from blowing air?
When asked by Jerome Powell on Sunday where the money came from, he admitted that "we print it digitally. As a central bank, we have the ability to make money. We do this by buying bonds, increasing the money supply. And not only that. We can also print real dollars and distribute them through the banks. "
Eventually the old alchemists have been wronged by history. They made a more honest effort. They were trying to transform copper into gold. Not from nothing! But when the only tool you have is a hammer, then everything looks like nails waiting for you to hit them.
We have repeated it several times, but we mention it again. We now have two parallel monetary worlds: inflationary, where money is arbitrarily printed, and the world of bitcoin. There, the money supply is predetermined and steadily declining, with a maximum of 21 million bitcoin.
Bitcoin is a rare, finite money. Which, of course, made the video an overnight sensation. We do not understand their degradation, because the changes are imperceptible every day. Like the frog, where the water is slowly heating up. Until it's too late. The banknotes in our wallet will still be there, but their purchase value will continue to shrink . Deliberately.
The market today
It makes sense to expect a few drops from the flood of liquidity that is spreading in the global monetary system to fall on bitcoin as well. For now, the price of bitcoin is going through a phase of accumulation, as we see in the 4-hour chart. It moves between the green long-term trend line and its blue parallel.
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