With much preliminary March data indicating a really rough time last month, many businesses are warning that April could be even worse. Rating agency Fitch is warning that loan defaults could rise to record levels this month as a result of the ongoing economic shutdowns. Even with states like Georgia and Texas starting to reopen, it will be a long time before everything gets back to normal, and no one really knows what the “new normal” will look like.
Lenders are starting to react in advance of what they believe to be a wave of defaults. Anecdotal reports indicate that many mortgage lenders are tightening up mortgage standards, requiring higher credit scores and significantly higher down payments than they had up until recently. Many credit card companies, too, are tightening up their lending standards, getting set to cut credit limits for riskier borrowers so that they don’t end up holding the bag when those borrowers default.
This is a sign that many businesses see the writing on the wall, and they’re worried about another 2008-style crisis. But if they’re starting to make preparations based on what they see now, you can almost guarantee that the coming crisis will be even worse than expected.
In the past five weeks the US workforce has lost about 17% of its employees. Economic output will likely take a nosedive. The Federal Reserve has already increased the size of its balance sheet by over 50%, creating over $2 trillion in new money. The national debt has increased by over $1 trillion. And no one knows how long the lockdowns will last.
We’re looking at possibly 3-4 weeks or more of stay at home orders. While non-essential businesses have been shut down for a while, it’s only a matter of time before the essential businesses that supplied those non-essential businesses will have to shut down and lay off or furlough employees due to a lack of business. And then things will really begin to spiral downwards.
No matter how you slice it, we’re in for a world of hurt, and investors need to prepare themselves. While stock markets may be shrugging off a lot of what’s going on right now, that can’t go on forever. At some point reality will set in, as decreased earnings and plummeting expectations for the future will take the shine off stocks.
If you haven’t already protected your retirement savings by investing in gold, silver, or other hedges, now’s the time to start thinking about it. With the second quarter bound to bring plenty more bad news, markets are primed to lose lots of money. Don’t let your investments get dragged down with them.