According to economic experts, an economic collapse is looming and the new stock market crash is expected to happen before the elections. Recent studies have indicated the many elements that will likely undermine the financial markets over the next weeks and today we are going to analyze those determinants and discuss how they are going to affect the next chapters of the economic collapse. Keep with us and don’t forget to like this video, share it with your friends, and subscribe to our channel if you haven’t already.
Deutsche Bank disclosed to clients this week they can already “see an increased risk of financial disruption down the road from the growing overvaluation of assets and mounting debt levels.”
Furthermore, Deutsche Bank gathered a team led by Peter Hooper, global head of economic research, to release the World Outlook Update, which predicted the pace of the recovery – or as we prefer to call, the calm before the storm – to slow as the viral cases will likely soar through the winter months, especially if another fiscal package isn’t issued before the US elections. But the team anticipates that when the summer comes, and the vaccinations start to happen, the prospects of a restructuration could resume, and presuming there is a successful vaccine, the team foresees three-quarters of the world’s population could be vaccinated by mid-2023.
However, don’t expect the vaccine to fix the economy. Hooper alerts the virus will leave persistent scars in the markets, such as long-term damage to the hospitality industry, and automation is likely to take jobs away for good, meaning that a full recovery of the economy to pre-sanitary-outbreak levels may never happen. Also, the Deutsche Bank strategists, who can also see the looming financial crisis being formed by the growing overvaluation of assets, increasingly high debt levels which were driven by the massive fiscal and monetary policy stimulus granted by the Fed, outlined that “financial crises have often been touched off in the past under such conditions by the inevitable shift from policy ease to policy tightening, which is likely still at least several years away, but could surprise sooner.”
Conversely, the team called attention to the fact that politics may become a bigger threat than some might be considering, affirming they could see “significant risks of not getting a quick and clear resolution to the general elections this time around, with a likely unprecedented share of mail-in ballots and delays in counting holding the potential for a contested election”.
John Dizard explained in a recent article, the large banks “are far more risk-averse and better capitalized than in the past crisis, and the housing industry is prospering from the refinancing boom made possible by Fed easing. Since the Lehman/2008 financial collapse, risk has been moved off bank balance sheets and into securitization markets.”
Which means, this time around the economic collapse will be triggered differently, and strategists are signaling that the spark for the coming financial crisis will be the market’s rejection of a few classes of securities, in a similar fashion to the 1929 collapse of pyramided securities holding companies. Thus, to discover what the point of vulnerability in the US financial markets could be, we have to take a look at “the least legally flexible credit securities that can move the fastest from low risk to visibly defaulted,” as Dizard stressed.
And those would be the commercial mortgage-backed securities – or CMBS. As we mentioned in a recent video about the Big Short 3.0, the CMBX S9 BBB- tranche has an exposure to the hotel sector, which is the one presenting the highest rates of rental insolvency, paired with malls and restaurants. The tendency points for an acceleration on the deterioration of these securities to happen from now on, except in case a miraculous liquidity injection is issued by next month.
In any case, by then, the market will see more and more triple A-tranches jumping down to BB, one of the same things that happened back in 2007-2008 when the last financial crisis started to speed up. Amongst the easiest targets of the byproducts of this crisis will be the major credit rating agencies, which downfall will severely reverberate in the real economy.
If you’re one of those who still have hopes to see an economic upturn for this year, I’m sorry to disappoint you, but all things point to a bigger meltdown.