Life in the UK Spells Trouble Ahead for Global Economy

Last Tuesday, during a virtual consultation with the physician treating our daughter’s long-COVID, he said ‘These past couple of weeks are the busiest I’ve ever been. This latest strain has really taken off. You put the lid on this [virus] and as soon as you take it off, it spreads like wildfire. Don’t be surprised if you can’t get back into Australia early next year.

At the time, I was thinking he might be just exaggerating things a little.

Not so.

On Saturday afternoon, the announcement Londoners did not want to hear, was made…

‘“I must tell you we cannot continue with Christmas as planned,” Boris Johnson said, as he set out fears over a new COVID strain.

Millions of people will no longer be allowed mix with other households at Christmas, with a new Tier 4 level of COVID restrictions now in force.

In a dramatic move, prompted by fears over a new strain of coronavirus, all of those areas previously in Tier 3 in the South East — including London — moved to the new Tier 4 on Sunday [20 December].

Sky News UK, 20 December 2020

Boris’ latest lockdown has stolen south-east England’s Christmas.

One thing that’s not been in lockdown this year is the price of bitcoin. What I know about cryptos you could write on the back of a postage stamp with a very thick pencil.

But someone who is an ardent student and supporter of cryptos is my good mate and colleague Ryan Dinse…editor of Crypto Flip Trader.

Dinsey has been passionate about cryptos from day one.

And I have to give credit where credit is due, he’s been right.

If you would like to tap into Ryan’s extensive knowledge, on 23 December he’s hosting an online event: The Crypto Fast Lane Summit.

The event is completely FREE. You can check out all the details here.

Back to London.

EXPOSED: The truth behind Australia’s ‘miracle’ economy

The Struggle for Business

On Saturday, the day before the harsher restrictions came into force, I decided to get out for a spot of Christmas shopping.

Where should I go?

Memories of Christmases past in London came flooding back…Regent Street…that’s the best place for shopping and the festive spirit.

Without tourists in town, Regent Street was — by traditional Festive Season standards — almost a ghost town.

The street was closed to traffic…giving people sufficient space to practice social distancing.

Some shops — like Fortnum & Masons and Liberty — were busier than others. But all in all, it was quiet. Which for me — as a get in and get out quick style shopper — was perfect.

However, what struck me the most were the protocols in place to comply with a COVID-safe workplace.

Security guards to control the customer headcount. Staff to police social distancing on escalators and staircases. Hand sanitising stations. Personal protection equipment (PPE) for staff. Most stores would not allow you to try on any clothing…so it remained on the rack.

Reduced sales and increased costs…that’s not the best of equations for businesses. But at least they were open…ready for the last-minute Christmas rush.

That was until Boris’ ‘shock’ declaration. Non-essential businesses were shuttered on Saturday night.

My heart went out to those retailers.

You walk the streets and shop after shop is closed. Supermarkets, chemists and the occasional coffee shop (for takeaways) are open, but that’s it.

Little wonder the headline on page two of today’s Financial Times (21 December 2020) says ‘UK business despairs at new lockdown restrictions’.

Citing one example from the article…

Ian Warren, of Philip Warren Butchers in Launceston, Cornwall, said that following the latest announcement his business was “flooded with requests to cancel orders” for turkeys and other festive meats. “It would completely decimate our business having to agree to these refunds, since we’ve had to commit to the festive produce from our suppliers already,” he said. “I am well and truly done with 2020,” he added.

As a business, how can you possibly plan in this off-on-off environment?

Adding to these woes, has been Europe’s decision to close its borders to the UK. What impact will that have on cross-channel trade?

But this economic destruction is not isolated to the UK and Europe.

In last weekend’s Financial Times, I read (emphasis added):

The Bank of Japan has launched a review of its monetary policy for the first time since 2016 after the COVID-19 shock crushed hopes of achieving its 2 per cent inflation target.

The decision to launch a review highlights the depth of the central bank’s concern over this year’s slide back towards deflation and its inability to achieve its mandated price stability goals.’

Sometimes you just have to laugh at the sheer stupidity of central bankers.

Derangement must be a symptom that afflicts those who suffer from ‘master of the universe’ syndrome.

What makes these pious, pontificating PhDs think they — and they alone — can ‘mandate’ what an economy should and should not do?

Economic activity is the by-product of billions of people making billions of decisions on a daily basis. Yet, a handful of academic blowhards think they know how to control such a complex (and continually evolving) system? The hubris is galling.

For all their money printing and interest rate suppression, they still aren’t within cooee of their precious (plucked out of thin air) mandates.

So will they finally acknowledge their impotency and just let market forces sort this mess out?

Not on your Nelly.

Expected to report in March 2021, the review will consider the potential for further effective and sustainable monetary easing”, beyond the large-scale asset purchases and negative interest rates used since 2013 and 2016, respectively.

According to central bankers, we just need more — much more — of what hasn’t worked in the past.

This madness is not confined to the BoJ. The Fed, ECB, BoE, RBA and others all suffer from the same derangement symptom.

The problem is, this irrationality has infected market participants.

Investors genuinely believe that what’s happening in UK, European, US and Japanese economies has absolutely NO bearing on the pricing of shares in companies that generate revenues from those very same economies.

Thanks to the brilliance of Wall Street marketers, the ‘disconnect’ myth has now become an established fact.

If you really believe that myth, then you’re in for a very rude awakening.

Over the long term, GDP growth (green line) and US market growth (blue line) are connected.

Port Phillip Publishing

Source: Cadence

[Click to open in a new window]

The ‘disconnect’ myth started in the mid-1990s, around the time the dotcom boom started gathering momentum.

The dotcom bust almost forced market growth to rejoin economic growth.

Greenspan was having none of that. He fuelled a US housing boom that once again, pushed the blue line higher.

However, the global financial crisis ultimately (and very briefly) reacquainted the blue and green lines.

Then the Fed went into overdrive…using stimulus measures to push market growth well above economic growth.

Plain old common sense says this simply cannot last.

Underlying economic activity — in real terms minus the various welfare programmes — is very weak. Ultimately, the truth wins out.

Businesses with cash registers remaining silent will default and/or shut up shop. Unemployment will rise. Houses will be foreclosed upon.

As a senior executive of a major UK hospitality business told me last week, 2021 is going to be a ‘sh*t show’.

For the blue line (@$250k) to reconnect with the green line (@$100k) it requires a 60% market correction.

Personally, after seeing it firsthand over here, I think it’ll be all of that and more.


Vern Gowdie Signature

Vern Gowdie,
Editor, The Rum Rebellion

PS: In a brand new report, market expert Vern Gowdie warns of the dangers waiting in a post-COVID-19 world. Plus, he outlines the steps you should take now to protect your wealth. Learn more.

Vern has been involved in financial planning since 1986.

In 1999, Personal Investor magazine ranked Vern as one of Australia’s Top 50 financial planners.

His previous firm, Gowdie Financial Planning, was recognised in 2004, 2005, 2006 & 2007, by Independent Financial Adviser magazine as one of the top five financial planning firms in Australia.

In 2005, Vern commenced his writing career with the ‘Big Picture’ column for regional newspapers and was a commentator on financial matters for Prime Radio talkback.

In 2008, he sold his financial planning firm due to concerns about an impending economic downturn and the impact this would have on the investment industry.

In 2013, he joined Fat Tail Investment Research as editor of Gowdie Family Wealth. In 2015, his book The End of Australia sold over 20,000 copies and launched his second premium newsletter, The Gowdie Letter.

Vern has since published two other books, A Parents Gift of Knowledge, all about the passing of investing intelligence from father to daughter, and How Much Bull can Investors Bear, an expose on the investment industry’s smoke and mirrors.

His contrarian views often place him at odds with the financial planning profession today, but Vern’s sole motivation is to help investors like you to protect their own and their family’s wealth.

Vern is Founder and Chairman of The Gowdie Advisory and The Gowdie Letter advisory service.

The Rum Rebellion