Trading is a very individual process. The more that you let emotions and the chatter in the media influence your trading, the worse you will do. Instead, listen to the market, especially now that the fundamentals have been shattered by this pandemic. The fundamental market collapsed in March. The thing that kept the market alive was the change from a real market to a virtual market.
We could look at it as a big margin call on the economy and the US dollar. The US has to come up with a large amount of stimulus, as demanded by the market, just like a huge margin call. The US dollar, as the world’s reserve currency, has seen a large amount of supply in the form of stimulus come into the market. That supply threatens the purchasing power of the US dollar, since more dollars means a weaker dollar.
In March, gold transitioned into a currency. Even though the dollar benefits short term from the stimulus and as a safe-haven for international investors, in the long term, it will decline against gold. When the US dollar was taken off the gold standard in 1971, it created a fiat currency that led to a new debt economy. Debt in 1971 was a few hundred billion. Now we are at about $27 trillion. The debt to GDP ratio is above 120%, which is unsustainable. The amount is mind-boggling. It raises questions about the integrity of the system and of the US dollar with such debt levels.
The US, however, as opposed to its creditors, can as much of its currency as it needs or wants. Our creditors cannot print US dollars. We are going to see defaults on foreign loans, as we did in 1981 with Mexico. The only alternative Mexico had was to devalue the Peso against the dollar. Then the Mexican economy entered a long period of inflation and the Peso went from 16 to 46 almost overnight against the dollar. By devaluing the Peso, it devalued the debt in that currency, but it led to massive inflation. The US will face a similar situation at some point in the future. Financial assets will then collapse.
Russia, China and Third World countries that are in debt in US dollars are beginning to see a credit crunch as demand for US dollars increases. In response, the US is printing more and more dollars to meet that demand. The US also had to print money to maintain confidence in the system. The government also had to keep interest rates at almost zero. In Europe interest rates are negative, if you take inflation into account. If or when interest rates rise, then the defaults on this massive global debt are going to be common.
The US is talking about another trillion dollars injected into the system. The market, however, is screaming for more money. The demands for more stimulus will only increase next year. New lockdowns will only make those demands even more strident.
With the massive printing of money, it will artificially inflate stocks, real estate and other assets valued in dollars. But, at some point, the dollar will collapse. All of these factors are good for…
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