The biggest financial bubble ever is now popping and it’s taking everything down with it. That’s why this is being called the Everything Bubble, cautions Mary Anne and Pamela Aden, editors of The Aden Forecast.
Basically, it was fueled by the biggest explosion of money and debt the world has ever seen. And now, we’ve been seeing the effects via this year’s huge inflation rise. Even though it’s reported at being near 9%, experts agree it’s really near 17%. And this is happening all over the world.
Following the Fed’s biggest rate hike in 28 years, most of the markets collapsed. They were already on their way, but this gave them another push down and it happened pretty much across the board.
Over the past month, for example, overall commodities were down 19%. This was the third largest one month decline in 90 years. Crude oil dropped 16%. Natural gas plunged 41%. Cotton declined 32%, and so did other agricultural and base metals prices. Precious metals declined as well.
Most important was copper, which dropped 21%. Copper is an economic barometer and it tends to lead the way for the economy. So the fact that copper’s been declining for the past few months is a strong sign that a recession is probably coming downstream.
In fact, we may already be in a recession. The official definition for a recession is two consecutive quarters of declining GDP growth. We know the first quarter was down 1.6%. And if the second quarter is also negative, then the recession will be official. Increasingly, more experts are forecasting a recession and some expect a hard landing.
Note the 2-year yield is higher than the 10 year yield. Plus, the 2-year yield is also higher than the 30 year yield. If this continues, it's clearly a strong sign that recession is around the corner.
In the meantime, there are other straws in the wind reinforcing this. Housing, for example, has come under pressure, which you’d expect with higher mortgage rates.
Also very important is that consumer sentiment has plunged to the lowest level in 44 years. Here too, consumers account for about 75% of economic growth and if they’re feeling uncertain and worried about what’s happening, it’ll put downward pressure on demand for all sorts of goods, which could help trigger a recession.
It’s the same story with other sentiment measures. Small business owners, for instance, are the most insecure in 48 years. Manufacturing is down and so on. Meanwhile, on the international front, the story is also similar, and in many cases worse. In China, there’s been a run on some of their banks, along with protests. And Russia defaulted on some of their bonds for the first time since the 1917 Bolshevik Revolution.
On a bright note, the declining prices are going to help ease some of the inflationary pressures. At this point, it’s still to be seen by how much, but it’ll help, along with diminishing demand. Already pressures are easing on the supply chain front and that too is helping. In fact, we’ll be watching to see if inflation tones down a bit in the months ahead.
For now, however, most of the markets are down, but they’re not out. Yes, it’s been a bad year. There’s no question about it. And when this happens, safety becomes ever more important. Some markets have been hit harder than others. But several appear to be at their lows, like bonds. Others are not, like stocks.
Overall, the crypto world has been especially had hit. This bubble has literally popped the hardest compared to all of the other markets and it looks like there’s more to go on the downside. Plus, stocks are poised to fall further. And if they do, we can assume that Bitcoin and the other cryptos will continue to drop along with the stock market.
Currently, our strategy essentially remains the same. We’re keeping a good portion in cash in U.S. dollars. We also advise keeping your long-term U.S. government bonds and/or bond funds.
We’re also keeping our precious metals, shares and resources, and riding through this weakness, which is poised to end soon. And finally, continue to avoid stocks. We think you’ll be glad you did.
