There is a Disconnect Between the Markets and the Economy

Dear Reader,

Like every week, I sit at my desk to write this newsletter to you, when I’m interrupted.

‘Knock, knock’.

The sound startles me.

There’s someone at the front door, but I’m not expecting anyone. I vaguely remember I ordered a package a while ago, one the company has given up for lost. Maybe it’s not lost after all.

I open the front door. The man standing in front of me is tall, clean shaven and wearing a tailored suit. He also isn’t carrying any packages.

He doesn’t introduce himself. Instead he holds his phone up to me and shows me a photo of a man. The man that smiles back from the screen is wearing shorts and a t-shirt. A baseball cap covers part of his face.

Do you know this man?’ he asks.

More on this in a moment.

Outside the building, a killer virus is spreading across the world. There are millions infected and thousands of deaths.

Much of the world is in lockdown. You’re probably reading this newsletter from your home. I hope you and your family are keeping safe.

In this kind of setting, internet and technology have been a blessing.

Everyone in our office is still working from home. We get our outside news, we exercise and we shop all online these days.

We also socialise. Last weekend I had coffee with my family in Spain through a screen, and drinks with friends around the world who I hadn’t talked to in a while over Zoom.

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In this Groundhog Day-type lifestyle, I bet many are starting to appreciate how much freedom we had before, and wonder if we will ever get any back. I’m certainly wondering that myself, or if I will ever see my family in Spain again.

To control the spread, governments around the world are asking people to wash their hands and keep their distance.

Also, many now are looking at tracing apps. There isn’t much info out there yet on the app Australia is looking at implementing, TraceTogether. From what I’ve read, it keeps a trace on who users have been in contact with and for how long. It then can alert the user if they are at risk of exposure from someone they’ve been in contact with.

It all sounds like a strange apocalyptic fiction when you retell it like this. But it’s real.

I think the government so far has done a good job. They are keen on getting the economy back to normal, to ease shutdowns.

Would downloading the app be the only chance to get back to normal life, to work and make a living? To get the economy going, to slow the spread and save lives?

To me this is a slippery slope. Gain back some freedom in exchange for your privacy. You’ve already noticed how easy it is to adapt to new situations in times of stress.

We could end up with a scenario like Nineteen Eighty-Four. One that would make it harder to have your money outside the financial system.

Do you think this app is a good idea? I would love to know, send me a note at cs@portphillippublishing.com.au.

The economy is completely upside down

At the same time, the economy is completely upside down and, in my opinion, it has been for a while. Even before COVID-19 hit.

The economy is tanking, unemployment is rising but markets are in a recovery. The S&P 500 is back to trading at the level of the beginning of last year.

It doesn’t make any sense.

It has nothing to do with the state of the economy, but on central banks throwing money at the economy and hoping we reopen the economy.

We still have no idea how long this will last. It’s likely we’ll have more than one lockdown. There is no vaccine, no clue when we will get one or even if one is possible.

I hope that you are realising that there is a disconnect between the markets and the economy. Interest rates are low and kept there artificially, consumers are losing their jobs and closing their wallets, companies aren’t selling anything but we are seeing markets recover.

It’s crazy.

We have been warning about this for a while now here at The Rum Rebellion, hopefully you have taken precautions. Got rid of debt, set some cash aside and bought some gold…

But back to our mystery man at the door.

Do you know this man?

I must have looked puzzled because he adds:

He’s a client of mine. He’s disappeared. The last time we tracked him his trace disappeared around this area.

I tell him I don’t know him.

A client? Disappeared? Tracked him how? Why are you searching for him? And, who are you?

I have a million questions, but he leaves without answering any.

These are weird times…

Regards,


Signature
Selva Freigedo
Editor, The Rum Rebellion

PS: Famous economic forecaster Harry Dent warns of a ‘crash of a lifetime; coming in 2020… Get the Free Report Now.


Selva Freigedo is a research analyst for The Rum Rebellion.

Born in Argentina, her passion for economic analysis started at a young age. Her father was an economist for the Argentinean governments and the family used to discuss politics and economics at the dinner table.

Argentina is a country with an unusual economic history. Growing up there gave Selva first-hand experience on different economic phenomena such as hyperinflation, devaluation and debt default.

Selva has also lived in Brazil, Spain and the USA.

Back in 2000 she was living in the US as the dot com bubble popped…
And in 2008 she was in Spain as the property market exploded and then collapsed…

She has seen first-hand what happens when bubbles burst.

Selva joined Fat Tail Investment Research’s team in 2016, as an analyst. She now writes from her vantage point in Australia, where she settled in 2015.


The Rum Rebellion