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The crash about to arrive

It is not new that the black shadow of a major recession will arrive any time now, it was for sure one of the most anticipated moments during 2019 and somehow it appeared exactly as expected in 2020. The only thing we didn't know was the “how”. Now we know for sure that the Covid-19 will transform things in a more deeper way as forecasted back in March.

The markets at the moment want to stay optimistic, partly because many people don't want to see the fire even if their house is burning, and partly because during 2019 and 2020 online investing has boomed, being more easily and accessible to any one. 

I bet you have seen a ton of ads on the internet and the streets during the last few months about online trading. These platforms are gambling platforms, encouraging people without knowledge to do day-trading rather than fundamental trading, advertising that 83% of the people lose money while trading. During the lockdown the USA government gave to every citizen a 1.200$ check to cheer the economy, thinking that the people will use the money to go and buy goods because of the pandemic they were not buying. But the surprise was when 3 million new trading accounts were opened, using not only the money of the government but part of their savings. This behaviour was lifted both by the advertisement of the online trading platforms, and the wishes of many in Wall Street that never want to end the party. 

If you do the easy maths, 3 million new accounts with (let's imagine) 10k per account means 30b$ entering the market at once, being able to move whatever they wanted in minutes and bringing the craziness to many stocks and products.

Meanwhile, the economy was not only not outperforming as the market was doing, but was running down full speed. The number of cases was rising as it wasn´t really a curve going down but a very straight line that nowadays continues to rise. India, Brasil, USA… more and more cases of Covid-19 have made the world's biggest economies come to a stop, even if people don't want to see it.

If this wasn't enough to alert about the crash, the petrol under 40$ (and for hours under -30$) is making the petrostates and petrocountries suffer an internal economic crisis that only will end if the price rises to 70-80$. But of course the only problem is not that the production is flooding the markets, but that because of the global shutdown the consumption of petrol has also plummeted. Not only are the planes not flying, the home office system has alone in the EU reduced by two million barrels a day the consumption of the black gold. For countries like Russia, Venezuela (already in the world's biggest economic and social crisis) or UAE being their first income the petrol business, petrol under 40$ make their ability to keep their lifestyles (specially the UAE) have a very short and clear runway. For other countries such as Norway and the USA, the price of the petrol won't automatically kill the economy, but their income revenue will influence their GDP soon.

Last but not least, the Covid-19 is bringing one more effect into our society that is less visible now, but that will transform for sure entire cities, countries and in the near future companies. Making home office does not only mean being at home, needing a table and a chair, working half pijama half shirt. Making home office means that less people are gathering together to go to have a coffee while working and going out to eat lunch. This means that the sales of restaurants and coffee shops are plummeting not only because people are not using the coffee shops and restaurants as we used to. Home made and delivered are the new normal in a world that still has to learn how to do home office in a way that is not only practical but also mentally healthy. 

Making home office means as well that we need less office space and at the same time more space at home. Many office real estate companies are suffering now seeing how their tenants are leaving and that new projects are being cancelled. Office companies are not the only one that will suffer, the house market is about to see how the highly appreciated small flats are no longer attractive to the people that have to create an office at home, and even it won't be for sure that people will move to the biggest city if they only have to go to the office once a week.

To recap: the world economy is in shutdown mode. The biggest economies are struggling either with Corona or with low petrol prices. The economic model for many companies is changing faster than expected and the unemployment rate is skyrocketing even if countries prefer not to see it. The money injection does help countries to keep running by creating a bigger bubble, and now the only question is “when will this horse of cards fall”.

My personal guess: between October 2020 and March 2021. Why? Firstly, because all the economic crises have begun between these months, making it statistically favorable. And secondly because most of the countries are already starting to see bigger damage signals due to the virus that can't be covered anymore with economic stimulus. The lack of customers will begin to shut down places while the demand for goods continues to go down. The real estate market will have to reduce rent prices and sell assets flooding the market with more offer than demand, bringing down the prices. And the oil producers will tighten the production bringing oil prices back to 60-70$, meaning that production will be reduced to match the actual consumption. 

It is said that the market can predict what the future will bring, and in this case I think the European stock market is capable of predicting the future much better than the hyped USA market is. It is time to be cautious with the investment and open minded to new ideas, don't forget that during the 2008 economic crisis many of the companies leading the march nowadays were born (Airbnb, Uber,...).


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