This is was the average GDP growth of the global economy in 2019 (3.1%)
This is the GDP drop we saw during the financial crisis of 2008.
This is the GDP drop that we saw during the worst parts of great depression.
And THIS is what the economic darling of singapore had just gone through in the last 3 months alone.
A 41.2% drop in Gdp was the largest plunge of a major economy since…
The UK had a 19.1% GDP plunge that was reported just a few weeks ago.
And Canada having nearly a 19% plunge with that number expected to be even worse as more economic data is reported.
And those are just some of the countries that have reported some economic data in the last 3 months. Countries like the united states, haven’t reported their numbers recently.
But regardless, what has amazed me is that just 5 months ago, economists and investors were worried about if we would see a 1% growth rate in a quarter, versus a 1.2% growth rate in a quarter. And that small 0.2% difference in GDP would have a tangible effect on things like the stock market, interest rates, and real estate.
And yet, these 19 to 40% plunges that we are seeing are being completely written off by investors. I mean, since march 23rd, the stock market has risen by more than 44%.
So why is this all happening? And what will we see going forward? Well, this is what I like to call the economic waterfall.
You see. The economy is like a bunch of different ships that are floating along different points of a river. Meaning that not all aspects of the economy will reach the end of the river and go over the waterfall at the same time.
For example, the financial crisis of 2008 actually started in 2006. You see,2006 was actually when the real estate bubble began to burst. That is when we started seeing the rapid increase in mortgage delinquency rates, and foreclosures on homes.
However it wasn’t until mid 2007, that we started to see the first bankruptcies from the financial crisis.
And then finally in 2008 after years of poor economic indicators from the financial sector and the real estate market… we finally saw the stock market crater, and unemployment numbers skyrocket.
All this means is that certain parts of the economy reached the end of the river and fell over the waterfall at different times. And we are seeing something similar today, just at a much more rapid pace.
In March we began to see the slowdown in manufacturing, and the increase in unemployment.
In April and May we saw the top lines and bottom lines of businesses begin to be dramatically affected.
And in June and July, we have now started to see one of the worst economic indicators go off the waterfall, and that is bankruptcies.
You see, when businesses began to lose their revenue in April, we started seeing those same businesses burn through their savings, and simultaneously take out loans in order to get through these troubling times.
But after months of businesses like restaurants, hotels, and travel companies seeing their revenue being 30% or less of what it once was, we began to see many of these companies run out of money and declare bankruptcy.
And What’s frightening is how quicky these bankruptcies have been accumulating.
You see, In April of this year, bankruptcies were actually down by about 40% compared to average over the last several years. but now we have seen back to back months in May and June where their are 50% more bankruptcies than normal.
In fact, we have just started to see the very beginning of this bankruptcy surge, yet it is already the worst we have seen since the financial crisis.
So who is going bankrupt? Well here are some of the biggest name brands that you might know.
One of the largest Franchisee’s in the world…NPC international…who runs over 1200 pizza hut’s and 400 wendy’s…has recently filed for bankruptcy, citing that they have become unable to make payments on their $1 billion dollars worth of debt because of the loss of revenue from the lockdowns.
Hertz which is a car rental company that was once worth over $20 billion dollars, recently filed for bankruptcy with 25 billion dollars in assets.
Latam airlines is another multi billion dollar company that has declared bankruptcy.
There’s also, Neimann Marcus, which is actually owned by the canadian government, but that’s a whole different story.
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