Hey everyone and welcome to another weekly recap post for May 2, 2020. So many things are happening that I feel like I need to publish these things on a daily basis!
One of the most momentous things in history happened this week with barely a mention in the media. It involves US debt and the treasury market, see below for more info.
Now for my disclaimer: this post contains affiliate links where the blog may receive a small commission on any sales from EQ Bank, Scotiabank, Questrade and Tangerine.
US – China Relations At All Time Low
Trump is hell bent on punishing China for Covid-19 and this should have every investor scared sh*tless.
This week, Trump floated the idea that he would make China pay some form of reparations for the Covid-19 pandemic.
Of all the schemes floated, the most dangerous one was that the US would simply cancel some of the US debt held by the Chinese. Once this rumour got out, it was quickly denied by Trump and his economic team.
The reason why this is so dangerous is because markets rely on confidence and when they lose confidence they quickly collapse. The US has trillions of dollars in outstanding debt in the form of treasuries that are held by investors and countries all over the world.
The US dollar is the world’s reserve currency. Any crisis of confidence in the US dollar would be catastrophic for the world – think total economic collapse worse the than the Great Depression and major wars.
At this point, I think investors would be crazy not to hold some gold as an insurance policy against all of the chaos and a whole lot of unintended consequences.
I’m just trying to be realistic. The world will probably recover from the pandemic and all the negative economic fallout, but the debt balloon will be far larger. Already the economic bailout packages dwarf the ones doled out during the financial crisis.
All of this has me thinking: how long can all the money printing go on for and what are things going to look like on the other side?
Every investor should have a bit a cash on the sidelines. Park that money in a savings account like the one EQ Bank or Tangerine offer. And get some precious metal exposure for insurance.
US-China Military Showdown Inching Closer
Last weekend, the US withdrew its bomber fleet, including B-2 stealths, B-1Bs and the iconic B-52 bombers, from their base in Guam to more safer bases in the continental US.
Whatever their official reason for doing this, the real reason is that they didn’t want their bomber force to get wiped out in the event of a Chinese first strike.
Losing the bomber fleet, or a good portion of it, in a surprise attack would have been the equivalent of a 21st century Pearl Harbor.
This is the slow march toward war.
Coronavirus Economic Fallout
I think that the economic fallout from the Coronavirus will hit China especially hard. There are some big questions about this like: Will it rescue its economy like it did back in the last financial crisis? I think it’s likely that the Chinese government will try, but the real question is simply: can it rescue the economy?
Beneath the popular image in the West of a strong rising China is a country that’s been battling huge asset bubbles that has put its financial system under a lot of stress. There was the whole shadow banking crisis, slowing global growth and the Trump’s trade war. All of these things have weakened the Chinese.
Already there was social unrest in Hong Kong with protesters taking to the streets and effectively shutting the city down. Luckily for Communist Party who struggled to contain the protests, the coronavirus pandemic forced the protesters back to their homes, where their leaders were promptly arrested. Hat’s off to Xi Jinping for that Machiavellian play.
And Now for some Good News!
Bad economic times cause prices to fall and right now I’m starting to see some deals emerge. The auto industry is hurting and prices for vehicles are falling. I’m still waiting for deals on electronics (I’m in the market for a new PC).
Finally, I was able to get a deal on a rare coin that I’ve had my eye on for a while. The coin is an 1875H Canadian Quarter. I lost the one at auction back in February and good thing because I bought one last week for 20% cheaper!
How I Manage My Money
In case you’re wondering here’s where I park my money and some financial services that I use:
For my Daily banking and no-fee cash back credit card I use Tangerine. Curious? Check out my Tangerine vs Simplii Financial review and the Tangerine Money Back Credit Card Review.
For my Savings I use the EQ Bank Savings Plus Account. Never heard of it? Click the link to check out my EQ Bank Savings Plus Account Review.
For investing I use a combination of TD Waterhouse (for legacy investments) and Questrade (low cost stock purchases and free ETF purchases). If you haven’t done so already, check out my Questrade Review to see why it’s the best deal around. Get $50 in Free Trades when you signup for Questrade through this link.
