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The whole history of capitalism is based on “borrowed interest”. The entrepreneur borrows money at interest from the investor, makes money from the product or service, pays back the loan, and everyone stays happy. Both the entrepreneur and the investor. But something has gone wrong this year.
EUR/USD
The coronavirus has only spurred the process of uncontrolled money printing by the world’s central banks. This is presented with the idea that “the economy should grow”, but it is not growing anyway, just money going into the financial and stock market, inflating bubbles.
In the last 10 months the major central banks have printed almost 2 dozen trillion dollars of money (converted to US dollars). This has led to a completely absurd situation. Government bonds of many European countries are selling at negative yields. Of particular note is Portugal, which was recently bailed out by the whole of Europe from bankruptcy.
Saved? Of course not, just flooded it with loan money, drastically reducing interest rates. The last point is important. Portugal could not service its debt at 7% per annum, but it is perfectly capable of doing so at 0% or -0.1%. Doesn’t that make the country potentially bankrupt? All it takes is for rates to go back up and that will happen sooner or later and investors won’t be able to get their money back.
So what happens? Experienced investors now lend money not to get a return, as it has worked for centuries, but to end up with negative returns at best? And at worst, to lose money altogether?
We believe this is the breakdown of the global financial system and a whole new reality. Politicians can mind their own business, but it is critical for traders to understand where this could lead.
We propose 2 completely opposite and quite catastrophic scenarios for investors, with a lag of one year. That is, they could be executed by Q4 2021.
In the first case we will see the US dollar fall by 20-30% to a basket of major world currencies. And an even stronger fall, by the same 20-30% against the US dollar, of the currencies of developing countries.
In the second case, we expect a sharp strengthening of the U.S. dollar and a taking of the 1.0 level for the EUR/USD pair.
What awaits us today?
01.30 Reserve Bank of Australia minutes
03.00 China Retail Sales in November
08.00 UK Unemployment Rate for November
15.15 US Industrial Production for November
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