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Economics

Who will pay the bill? – Covid Thriller

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Recession, job losses, economic slowdown, debt to GDP ratios, inflation … you couldn’t have missed these ancient Greek words lately while watching the news or reading the financial paper. COVID-19 has exposed the public to an unprecedented financial jargon that challenges the most financially savvy citizen. Through this article, I try to undress the current economic events and their direct impacts on the world (us) as we know it today.

Photo by Dorrell Tibbs

Photo by Dorrell Tibbs

We all know it,  there is not such a thing as a free lunch. So, whenever we get one, the main question should be who will pay the bill? In addition, a smart thinker should be wondering how to protect himself from the so-called new norms, identified by Klaus Schwab as “the great reset”.

This looks like a cycle, a vicious cycle that has the tendency to come back every 8 or 10 years.

The Cycle

Although the world is facing a tremendous sanitary situation and COVID-19 being the scary face, let’s agree on one point here _ the world is in a quite bad shape economically and the current pandemic is simply a catalyst.

…What happens when you shift from the 3rd gear to the  5th one … the car goes faster. We actually lost control of the car.

The current economic malaise is unfortunately not just a road accident but an accumulation of sophisticated sabotages laid on the road. The earliest most relevant wreckages (if we focus on the post WW2 period) can be traced back to 1971 (the drive then, Robert Nixon decided to abandon the gold standard); by then someone burned the traffic lights in 1980 (Reagan & Margaret were on the steering wheel pushing the deregulation of the financial markets); straight after, we hit the side lane in 1989 (with Japanese financial crisis introducing the secular debt circle); so in the end, we got arrested for alcohol influence while driving in 2008 (subprime crisis).

Photo by Markus Winkler

Photo by Markus Winkler

All these events have 3 things in common: a considerable amount of people losing their jobs _ together with their biggest assets (their homes), the purchasing power drops to the floor (inflation), the technological innovations ensure that it becomes challenging to retrieve the same job (even for less money), And most importantly a strange addiction to DEBT.

This looks like a cycle, a vicious cycle that has the tendency to come back every 8 or 10 years.

Where are we now?

Since 2008’s financial crisis, Europe has accumulated an unprecedented amount of debt. At first in order to save the banks that were exposed to the financial crash started in the US, thereafter, to kick-start its economies devastated by the recession that followed.

I will dare to say something not mentioned enough even among European leaders, not all European countries move at the same pace nor have the same tradition and relationship when it comes to economic management. We even invented two discourteous terms to qualify the side of EU countries considered disciplined and those undisciplined [pigs vs frugal countries]. The real concern is that the current EU structure expects the Portuguese to become Germans and the Greeks Swedish. Complete nonsense _ since these countries with different historical and cultural backgrounds, and geographically dissimilar. 

Put simply, with an uncompetitive economy (as many of the EU economies are _ not only South European ones), an unparalleled debt burden (accumulated throughout time [figure1]), and a global pandemic that has destroyed most of the EU economies, there is a fundamental question one should be asking. How much it is going to cost, and who will pay the bill?

[figure1]: Source Eurostat _ Second quarter of 2020 compared with first quarter of 2020.

[figure1]: Source Eurostat _ Second quarter of 2020 compared with first quarter of 2020.

The COVID19 thriller:

Although I’m not a medical professional nor a physician, however, there is a clear observation one can make after the stops and gos, lockdowns, curfews (…) we went through since early March 2020 _ WE ARE NOT PREPARED, and my Ghanaian friend would say “the system is not working” (with the accent) 😉

The perfect illustration comes from the inability of EU countries to produce simple widgets such as masks and to organize their distribution. The French government, for instance, had its supply order of masks swooped by an unidentified American buyer who simply bided high price and took the order from the French (no French jokes here).

Sadly, France wasn’t the only one missing their mask delivery. The point here is to unveil a flabbergasted reality, an industrialized country such as France is no longer able to fabricate masks. This is the case in many sectors whereby Europe and the US just don’t dominate any longer. And, as a consequence, Europe has lost its ability to create jobs in these sectors as well as to control underneath technology [figure2], and most importantly to protect its people against unexpected shocks such as the COVID-19 outbreak.

[figure2]: The Library of Economics and Liberty - Europe has a massive and growing trade surplus, and is hemorrhaging manufacturing jobs. By Scott Sumner

[figure2]: The Library of Economics and Liberty – Europe has a massive and growing trade surplus, and is hemorrhaging manufacturing jobs. By Scott Sumner

Who will pay the bill

“But there is another message I want to tell you,” silence in the room…“Within our mandate, within our mandate, the ECB is ready to do whatever it takes to preserve the euro.”  These are words from the highly talented Mario Draghi (super Mario for the homies) in 2012 during the EU crisis. And talking about whatever it takes, he really meant it.

Deep in the Euro crisis, the Euro-zone has faced unprecedented austerity measures _ a much more sexy word to say budget cuts. But who are really the victims of these austerity measures? You and me. How? Through inflation, public goods and services rationing, fewer investments in education and healthcare, and the list goes on…

The above was already felt by many European countries. Although the trend has been to the low, for the last 10 years Spain hasn’t been able to show an unemployment rate below 10% _ currently at 16.13 from a record high of 26.94. The picture is not any better in France; a serious case study since it has a toxic relationship with unemployment for 30 years _ currently at 8.00 from a record high of 10.80 in 2013.

In July 2020, the newly appointed President of the European Commission, Mrs. Ursula von der Leyen announced a shocking stimulus package ever financed through the EU budget of €1.85 trillion (trillion with T) to boost the recovery of the Euro-zone heavily damaged by the COVID-19 outbreak; Just like Mario in 2012, Ursula did it [here].

As we know by now, there is not such a thing as a free lunch _ so, the question is, who will pay the bill? You and I  and how? I trust by now you all will be able to answer that question. If not, then read this article again.

Portugal Unemployment Rate

France Unemployment Rate

By Jana Randow and Alessandro Speciale. November 27, 2018

By Jana Randow and Alessandro Speciale. November 27, 2018

In my next article, I will elaborate on the strategies you put in place in order to protect yourself and your family from the upcoming economic disasters to come

written by – Sng

Stephane-Thierry Ngali was born in France and has been from an early age exposed to the diversity of the world and the value of traditions as the anchor of a nation’s spirit. Together with his father, Stephane-Thierry travelled across 13 African countries where he had the privilege to understand and experience the intrinsic value of the African approach to life’s tenet. Graduated in international business & finance, Stephane-Thierry had the opportunity to acquire in-depth knowledge in global finance and European wealth systems. Stephane-Thierry lives in Amsterdam and works for a cloud provider as a strategic business development manager.

Economics

Tipping out of the pandemic outbreak wealthier than before COVID

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In my previous article I elaborated on the pernicious results of uncontrolled debts accumulation in a period of uncertainty such as the current COVID19 one and who pays for it in the end. Adding to this, the compound effects of the debt that set into motion future economic malaises.

 

14 months since world’s economies were forced to stop, it is actually curious to see that many individuals, companies are tipping out of the pandemic outbreak wealthier than before COVID.

Without being a conspiracy theorist (which I’m really NOT), this article aims solely to help explain how stock market investors succeeded to growth their wealth while the entire world was paralysed (still is, in some places).

In my courses, I often highlight what can be considered as the 3 major pillars of wealth: stock market; real-estate; and entrepreneurship.

Although I clearly acknowledge that the concept can be extended to a highly complex one, I’ve learned from my grandfather to avoid complexity where it isn’t needed. The main challenge of the 3 pillars I just listed is that it requires a behaviour shift and a profound change in our relationship with money. So, here is what I consider should be the new norm: instead of being a spender one should become more of a saver and an investor; as opposed to be a consumer, one should be a producer; and rather than studying so hard to become someone’s employee, we should work hard to become successful entrepreneurs.

In this article I will be talking about investing in stock markets.

Spender behaviours during BLACK-FRIDAY, the struggle is real…

 

Stock Market Participation:

In his book Rewriting the Rules of the American Economy, Joseph E Stigliz exposes one of the reasons (among others) of American wealth inequality, stock market participation has been a big marker of wealth inequality if we consider the performance/gains of the US S&P500 since the last correction/crash in 2008.

 

Chart 1: Median Net Worth by Race/Ethnicity 1989-2016

Finance Phd. Dr. Boyce Watkins to add that the black community in the United States have given away billions in wealth (if not trillions) by stepping away from the stock market, which is certainly the main cause of the actual wealth gap.

Chart 2: S&P 500 Total return

The chart n#2 shows the performance/return of the S&P 500 for 30 years. One can clearly see exponential growth of the big companies (Netflix, Facebook, Nvidia, Microsoft or PayPal…) that we all use (and abuse) daily.

The performance of the stock market has turned consistent investors to millionaires and multi-billionaires in some parts of the world. This is indeed quite obvious considering the gains recorded on indices  such as the DJIA (Dow Jones Industrial Average, which reflects the stock performance of 30 prominent companies listed on stock exchanges in the United States) for instance. The US stock markets have been booming for the last 10years, and it seems that the pandemic we just went through didn’t stop the bull market.

Although these charts illustrate a US oriented trend, multiple studies actually show a similar pattern worldwide. Whether you’re in Spain, France, the Netherlands or the UK, stock markets performance reached unprecedented record high the last 10 years. Chart n#3 compares global stock markets gains since November 1990 (source from visual capitalist).

Chart 3: Market comparison

Of course, investing in stocks requires a basic understanding of the market and the companies’ you’re investing in. That being said, these are basic knowledge that can be understood by a 16yr old teenager. Adding to this, the financial market professionals’ sophistication and intimidating jargon often turn the average adult off. But as I usually say, if you can’t explain it easily to a 10yr old, you probably don’t understand it well enough.

Not participating in such a feast is literally like refusing to engage in a wealth building process, and therefore, transmitting a legacy of struggle and vulnerability.

 

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