The Worst Recession in Global History — How To Protect Your Wealth When the World Comes to a Crash
By now, I think all of us should have come to terms with the fact that we’re standing at the door of one of the biggest economic crises of our time. With the economic shutdowns, unemployment and the financial market crashes from the coronavirus—the latest reports from the IMF forecast a global economic shrinkage of 3% in 2020. In these past few days, I’ve sort of realized that the word recession doesn’t really capture the real extent of the economic uncertainty we’re looking at and predictions of a possible depression are really starting to concern me.
As it stands, nearly 80% of the world’s workforce is currently affected by the coronavirus in some way—either people are working fewer hours or they’ve been laid-off altogether. Global output took one of the steepest dives of about 4% within the first quarter of 2020 as Covid-19 spread to economies throughout the world. Stock markets are still bearish despite the efforts of governments around the world to keep their economies stimulated and even the Dow Jones Industrial index shows at best 50-50 gain/loss chances.
We need to appreciate how deep the damage from the coronavirus goes. It has changed the very structure of global economics—specifically the supply side, which will ultimately change our demand patterns as well. What I’m trying to imply is that economic theory might as well fail to apply to our economies because nothing that explains the economics of pandemics exists—because this is the first time in modern history that a virus has eluded all attempts to cure it. We don’t even know when a vaccine will be prepared and how soon it will become accessible to people, nor do we know if this virus will mutate because so far it’s eluded our understanding. I mean, how do you cure something that you don’t even understand?
The coronavirus outbreak is the single greatest challenge that we will face in our lifetimes—it will change the way we live forever. Many of these impacts will be felt across our economic and financial systems, affecting our wealth and financial well-being and we should be prepared for this fresh onslaught way before it begins.
What to Expect in the Future?
Unfortunately, governments around the world have a singular response to economic calamity—to increase regulatory control over financial and economic bodies. As the US elections come closer, a lot of people are predicting that the US government will raise taxes irrespective of whether the Republicans win or the Democrats. Considering the fact that the US Debt to GDP ratio is expected to blow up to 101%, I wouldn’t be surprised if the state responded in that way—it’s just how they work.
Even now, Joe Biden spoke of introducing a progressive tax system that is projected to raise $4 trillion in revenue for the government. The problem is many people right now will prefer this approach to resolving the economic crisis and alleviate the impacts of the coronavirus because they will view it as a “simple redistribution of income”. They will say “oh, the rich have more money than us so let’s tax them to make more money for the people”–without realizing the fact that the wealthy are also responsible for 50% of the entire value of the stock market.
None of this will come as a surprise and I think you shouldn’t be surprised either. The only thing left at this moment is to devise a financial strategy that can help you survive this shock and try to come out ahead once it’s over. While this epidemic is unfortunate, there are other opportunities that it presents and if you play your cards right, nothing is to say that you can’t come ahead in the long run.
- Jobs report: April 2020 was one for the history books. The unemployment rate hit 14.7% (the highest since the Great Depression) and 20.5 million jobs were lost. The job market has collapsed with stunning speed—in February, the unemployment rate was 3.5%.
- Markets: Either they were out golfing and didn’t hear the news, or the jobs report was already priced in. Stocks rose and ended the week higher.
- The U.S. Postal Service said its losses more than doubled to $4.5 billion in the recent quarter.
Possible Investment Destinations
Since the pandemic started, the pharmaceutical sector has been performing incredibly well—well enough for you to wonder if the recession is real. Don’t be fooled though, this is only happening because we are waiting on pharmaceutical companies and the biotech industry to come up with a vaccine for the coronavirus. Ever since the pandemic, individual company stocks have sky-rocketed by as much as 280% on stock markets across the world.
If you’re looking to hold investments in the financial markets—go for medical companies, equipment manufacturers and biotech companies. You should also look into the logistics industry that has come into the limelight as one of the biggest anchors in the maintenance of consistent supply chains during the pandemic.
Move into Cash
You shouldn’t tie up your money into stocks or bonds, even if the massive quantitative easing around the world is raising bond prices. The stock markets are highly unreliable, and the fed is thinking of pulling out of the treasury market because of the disproportionate increase in public spending over the past couple of months. This will significantly reduce demand for bonds and push down prices—and when you combine these with low-interest yields—there’s no reason to tie up your money in these instruments.
You should instead consider liquidating at least some part of your portfolios to get the cash you need to buy tangible assets during the rebound. It’s not far away now, as economies around the world ease up lockdown restrictions to improve the state of financial markets. Look out for future opportunities to make a long-term investment in your financial future.
Diversify into Precious Metals
Gold has performed fairly impressively over the past few months and is expected to hold well over the longrun because the stock market shows no signs of recovery so far. A rally that started somewhere in August 2019 in gold markets has continued, riding the coronavirus wave, to take precious metals values to record highs. These trends are very likely to continue.
In a time such as this, only the smart and decisive will survive this economic environment—as well as all the authoritarian rulings that will follow. The existing uncertainty and the need to exert control that is to be expected of our state systems will become increasingly suffocating and we need to be prepared for it. Which is why, I think its time that all of us started making moves to ensure that we’re not caught by surprise as a new wave of financial authoritarianism engulfs the global economic order.
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About The Author
Mikkel Thorup is the host of The Expat Money Show podcast and Director of Content at Escape Artist. He is also the author of #1 Best-Selling book Expat Secrets on Amazon. He has spent nearly 20 years in continual travel around the world, visiting more than 100 countries including Colombia, North Korea, Zimbabwe, and Iran. His goal is to help people just like you to generate additional streams of income, eliminate your tax bill, and take advantage of offshore structures so you can travel the world freely and never have to worry about money again. For more information on his legal (but creative) tax strategies for Expats watch this free video.
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