Due to the rising interest rates of the US central bank, we will see a massive slump in the global economy. As a result, all investments, whether stocks, bonds, commodities, real estate, or cryptocurrencies, will go under.
Or to put it another way: a few months ago I was on the phone with various companies and they all said that the order situation looked good. But the phone hasn’t rung for about eight weeks. On the contrary, there are only cancellations. We are experiencing an emergency braking of the world economy after an already weak situation of the last two years.
We are currently experiencing a very exciting time. The great fortunes of this world were made in such phases. The Kennedys made their money in the Great Depression of the late 1920s, as did old Onassis. What’s happening now is a chance, you get it once every hundred years.
A lot of people will lose everything, but a few will also become very rich. The right timing is crucial, you mustn’t grab the falling knife too early. You have to wait. And then, when it suddenly starts raining gold, you have to put out buckets and thimbles. Then it’s all in.
At the moment I advise every investor to do what is known as “Operation Dagobert”, in other words: keep your money together and don’t spend anything. Inflation or not – the price slumps that are still to be expected will be greater than the inflation losses.
Put every dollar you don’t need aside and wait for the moment when everything is absolutely in the basement.
When the US Federal Reserve turns on the money supply again – that’s what I mean by “raining gold” – then you should invest everything you have. Because for a short time everything will be very cheap.
That is the question of all questions. Right now, rate hikes are collapsing the market, but at some point the Federal Reserve will do a 180 degree turn and then stocks will geyser-like explosively.
I think that will happen within a time window within the next twelve months, but until then the central bank will first raise interest rates significantly. At the moment we are at 3.25 percent, but this number will probably increase to 4.5 percent.
We’re already in one. The real question is how long it will last. Optimists assume a few months, but I think it will take a little longer and expect price losses of at least 20 to 30 percent.
Others think it could even drag on for two to three years. If they are right, then a cut of 70 to 90 percent would also be possible. In theory, this could be one of the greatest global economic crises of all time. I think that’s unrealistic, but it can’t be completely ruled out. However: We are talking now at the beginning of October – in just a few months everything could look different again.
The official reason is to fight inflation. But I think it’s also happening to some extent for military and geopolitical reasons. For many years, the Americans have had the problem that China is vying for world economic dominance. Such a power struggle can eventually lead to military conflicts.
And before that happens, the Americans are trying to pull the plug on the Chinese rather economically. They did the same thing with Japan in 1989. This was a similar situation. Japanese companies had bought up most of the US companies.
The same story that is now being told about China. And what did the Americans do? They waited for the right moment and then, within a few months, they pulled interest rates steeply. What happened? The Japan bubble burst. The country has not recovered to this day.
But the same basic principle applies. Over the past 20 years, investors have been able to get money in the West for less than 1 percent interest and invest cheaply in China – with double-digit economic growth. So no matter what you have invested, you are sure to have made a profit. It was kind of a gold rush. And so every year more and more money was borrowed and brought to China.
Only: growth does not work indefinitely. Over the last few years, it has gone down from twelve percent to five percent. And precisely in this situation, the Americans are now turning up interest rates. So, on the one hand, money becomes more expensive and, on the other hand, returns fall.
The result: capital flight. Everyone who has invested in China over the last 20 years is trying to get their money back. This can cause the colossus to fall. And that’s exactly what the Americans are speculating on.
From the American point of view, a one to two year recession is a price one is willing to pay in order to challenge China for world domination for at least three to four decades.
Lots of collateral damage. We’re somewhere in between. Europe cannot raise interest rates, otherwise Italy and Spain will blow up in our faces. At the same time, we still have our own problems with the energy supply, in other words: the nuclear phase-out and the Russian gas ban.
We will probably see a huge wave of bankruptcies within 12 to 24 months. The middle class will be crushed. Only the big discounters at the bottom and the high-end luxury companies at the top will survive.
The brands and companies in the middle are dying between skyrocketing commodity prices and dwindling customers. I assume that at the end of this process Germany will fall to the economic level of France.
No, we are too small for that in global economic terms. We need something like the United States of Europe. As Helmut Kohl said, it is a mistake to assume that monetary union can work without political union.
But you were never ready for that, the differences were just too big. The rich countries don’t want to pay for the poor. But if, as just mentioned, the previous differences level out, the willingness to pursue a common policy for one’s own common benefit may also increase.
This is a great opportunity. But for everyone to want that, things have to get much worse first.
Like I said, I wouldn’t buy anything at the moment. Although some titles such as Ebay, PayPal or Qualcomm are currently very cheap in terms of valuation. In the current situation, these can still be halved. But over the long term, these are definitely good stocks to keep an eye on.
Another tip: meta. They went from 400 to 130. Sure, I don’t like a world domination company like that, but will they ever go broke? no
Facebook, Whats-App and Instagram are all strong brands and the Metaverse holds huge potential, maybe even becoming the next internet.
In fact, history has shown that gold has only a limited function as an inflation hedge. Sure, it will outperform most stocks over time, but gold rarely fully offsets the brunt of inflation.
In my opinion, these are pure speculation. It has been seen over the past few months that Nasdaq and Bitcoin have trended almost exactly the same. So it doesn’t help at all as a safeguard. On the contrary, most investors are gamblers, and should there really be a radical sell-off, these artificial currencies will be hit hardest.
The moment people lose their jobs but still have to pay their bills, there will be a radical sell-off in cash. And cryptocurrencies can be sold very quickly, and the prices then plummet.
Real estate has been completely overpriced in recent years, while rents have not compensated for this at all due to rent controls in Germany. And everyone who has now financed real estate on credit at low interest rates will be in their face in the near future.
Suddenly they have to serve something between five and seven percent instead of one percent interest. That means a lot of people will get into trouble and have to sell, with the result that property prices across the board will go down. So here, too, the motto is: just wait and see.
I have a clear answer to that: I’ve never bought a defense stock in my life, and I’m not going to start now. Just the idea that I hold armaments stocks and should secretly be happy when rockets hit somewhere or tanks roll because it increases my account, I don’t like it at all.
I don’t want to get into this ethical dilemma. Incidentally, the same applies to food values. Even if I knew for sure that rice and corn would be ten times higher tomorrow, I wouldn’t speculate on that. That only drives up the price, with the result that children somewhere go to bed hungry. This is a mess.
In the long run, they can be very interesting. Look at today’s politics, at the end of the day we all know where the journey is going. But the restructuring of our company will take a long time, at the moment I don’t see any good returns there.
I actually made one such investment, and it was in whiskeys. I like drinking Scottish single malts and it’s a market that has also only known one direction for years. But if I look at it over the long term over 20 years, there are two possibilities: either the whiskey has increased in value significantly during this time, or nobody is interested in the bottle anymore, in which case I simply drink the fine drop myself.
So a win-win situation for me (laughs). But seriously, I see this more as a fun investment. If you enjoy a nice car, a watch or even a whisky, you should do it. But as a pure investment property I would not recommend it. The risks are too incalculable. Incidentally, the same also applies to the art market.
Many always ask themselves the question: How do I invest my money? The actually more important question would be: How do I mentally position myself to deal well with a crisis? Because the hotter it gets, the more important it is to stay cool.
So before emotions run high and you make the wrong investment decision at the wrong time, you should draw up a master plan in which you clearly define when and at what price you want to buy or sell something. And you should stick to that, no matter what your gut says.
Dirk Müller is a German fund manager and author of several books on the stock market and economy. He originally became known through his prominent workplace on the Frankfurt Stock Exchange directly below the Dax price board, which earned him the nickname “Mister Dax”. Today, as the owner of Finanzethos GmbH, he manages the “Dirk Müller Premium Aktien Fonds” that he set up specifically for an impending price crash. He also runs the website cashkurs.com
This article was written by Michael Brunnbauer
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