Winners and Losers in the Post-pandemic World

Release date: January 13, 2021
Duration: 44min
Guest(s): James Rickards
James Rickards

Jim Rickards is the editor of Strategic Intelligence, a financial newsletter and the author of “The Great New Depression: Winners and Losers in a Post-Pandemic World”, as well as “Aftermath, The Road to Ruin, The New Case for Gold, Death of Money”, and “Currency Wars.”

Jim writes in his newest work, “The Great New Depression,” with the intent to show an optimistic viewpoint for those wanting to create wealth and preserve wealth in a post-pandemic world. Rickards feels that while there will be a lot of generated information on Covid-19, the pandemic effects and the economy, this book will be one of the only publications that tackles all of it; the pandemic and the economy, in one.

Robert points out that before the pandemic actually occurred, Jim Rickards warned of the possibility of a pandemic. In his previous work, “Aftermath”, published in July of 2019, Jim writes of a potential pandemic among a couple of other events, and warns there is a 100% chance of one of them happening within the next three years.

“This could lead to social disorder, mobs, and armed forces in the streets.” This is very much like what saw occurring during the summer of 2020. Still today, in Portland, Oregon, these social and socio-economic issues are front and center. According to Jim, “There’s nothing that occurred in 2020 that we didn’t preview in 2019 in Aftermath. If you read the book, you saw it coming.”

So, what’s coming next…?

Jim says, first of all, this is NOT a recession, although there is a technical recession. This began in February of 2020, and was essentially over by the end of June, 2020. In the third quarter, the economy grew. “That means the recession was over.” And for Jim, it’s irrelevant; we are in a depression, he says. Depressions are different from recessions.

A second, technical recession, (meaning the GDP declines two consecutive quarters), is likely starting now. We, as a country, have not seen back to back recessions since the early 80’s. And these back to back recessions will happen, or are happening, in the middle of a much larger phenomena, a depression. This, according to Jim, will have intergenerational effects.

“The virus didn’t cause the depression; our reaction to the virus caused the depression.”

“Viruses can cause pandemic, and disease, and tragically loss of life, but whether you go into a depression or not depends on the policy response,” Jim says.

Jim continues, saying the policy response was completely blundered. Lockdowns don’t work, as he explains in his new book. Governors across the country imposing extreme lockdowns, even now, in these second and third waves. Infection rates are peaking again and the virus is worse now than it was in March and April. A lockdown was the answer, and yet it did not stop the spread of the virus, but instead help in destroying an economy.

But the stock market is at an all-time high…right?

Yes, the stock market is at near all-time highs right now, explains Jim. However, there are really five or six big players in the stock market; Microsoft, Apple, Netflix, Facebook, Google, and Amazon. Those stocks are 40% of the S&P. Not 40% of the number, but 40% of the market cap. They are 40% of the index, because it’s a cap-weighted index.

“So, when I see the S&P at an all-time high, I say, ‘Okay, that just means APPLE, GOOGLE, and FACEBOOK are at all-time highs.” But what about the other 494 stocks in the index? And small business? Small business is what is hurt most by lockdowns. Not Apple. They are doing better than ever. Amazon is off the charts. Jim points out, “What about your nail salon, your dry cleaner, the local businesses?”

While small business is small in comparison to giants like Apple and Google, we have to remember that small to medium sized enterprises are 45% of GDP and 50% of jobs in America. Those are the ones getting shut down. Which effectively means we are shutting down, or allowing the shut down of 45% of our GDP and 50% of our jobs. Because of that, we head into a recession.

The gap between the reality of what is happening (shutting down nearly half of our GDP and our jobs) and the perception of what we see (think high stock market) is going to close soon. The stock market will come back down again.

“Reality always wins. Perception can take the market to a crazy place for a short period of time, but in the end, reality always wins. Reality is going to win again. The reality of the disease is horrific, and it’s about to get a lot worse from an economic stand point.”

Kim asks Jim what his thoughts are on the agenda behind all of this, behind the evident destroying of the economy.

It’s a combination of the arrogance of scientists, Jim says, and the ignorance of politicians. Anthony Fauci, head of immunology at the CDC, on both Trump and President Biden’s Coronavirus Task Force, has issued contradictory statements all along. He claims not to be telling us what to do, but ultimately, to Jim, Former President Trump handed over the economy to Fauci. Politicians handed over the control to epidemiologists, to the ‘science-side’ without stopping to think.

Jim argues that science is never ‘settled’ and competing views, ongoing research, debates are part of the ever-evolving world of science and medicine.

“If you’re a hammer, everything looks like a nail. If you’re an immunologists, everything looks like a lockdown.”

They don’t know what else to do. Vaccines are coming out and we’ll see how effective they prove.

Jim points out that we have a long way to go with vaccines for this virus based on the rush we put on science to provide them in the first place. It’s good that we have them, he reminds, but important that we see effective results. The virus is out of control, the economy is heading into recession, and stock markets are way over-valued. All of this will have to correct itself. Although Jim doesn’t know exactly when the stock market will start to correct, he warns that over a three to four month span, we can expect to see it begin. Investors, he says, should get ready for this.

What should investors do to prepare for what’s coming?

Jim says the Wall Street, 401K, IRA structure has been geared to drive people into the stock market. There’s a place for your stocks. Jim is not saying to dump all of your stocks but reminds us that there is a world of investments out there. Stocks, bonds, commodities, currencies, alternatives, silver, gold, real estate, fine art, natural resources. Outside of the traditional 401k’s, and IRA’s, there are other investment options.

Many people are offered a choice of five index funds and two money market funds, which make up their 401K. Jim has gold in his portfolio, and keeps it around 10%. Some people are higher, even up to 50%; but for Jim 10% is a good allocation.

Jim says he would recommend lightening up on the equity side. “Again, don’t go into a bunker. Don’t feel all of your stocks, but lighten up. Maybe go to cash. Certainly gold has a place.” If you don’t have gold, then perhaps invest in gold mining shares. Gold mining shares will outperform gold in both directions; up and down. But gold is in an upward trend right now. For gold mining shares, you really have to look closely at the management of the company. Some guys are brilliant, with experience and good track records. Some are frauds.

Jim also recommends big allocations to cash, as much as 30%. “People say, Jim, cash has no yield.” Actually, it could be your best performing asset in the year ahead.

This is Jim’s reasoning. We may be looking at a deflation, not inflation. Everyone is worried about inflation. It’s been since the early 1980’s since we’ve had serious inflation. The Fed has taken its balance sheet from $800 billion in 2008 to $7.5 trillion today.“All that money printing…you’re going to get inflation, right?”

No. Money printing has nothing to do with inflation. Inflation comes from velocity. It’s the turnover of money. You take $7 trillion of Fed money and multiply that by zero. How much is $7 trillion times zero? It’s zero. So, zero is the velocity. It’s the turnover of money that gets you the inflation. If you don’t have velocity, you don’t have inflation. Actually, you don’t have an economy.

Velocity has been dropping like a rock for 22 years. It’s not just a result of 2008. Nor is it resulting from 2020. That is why the Fed printing money has not turned into inflation. It could, at some point, but deflation is a bigger problem right now.

Deflation means the value of your cash goes UP. You don’t have a big yield on it, but it has more purchasing power because the price of everything is coming down. If you have 2% deflation, the real return on cash is 2% because even at the same nominal amount, it’s worth more. Cash also reduces volatility, so a slice of gold, a big chunk of cash, reduces your equity exposure.

Real Estate is really interesting, Jim says. It’s usually correct that residential real estate and commercial real estate move together, up and down, because they’re driven by the same factors; expanding economy, low interest rates, etc. That is not the case today. Commercial real estate is collapsing, and getting worse. Residential real estate is soaring in certain areas. Location, location, location, he says, although a cliche, is still true today and driving residential real estate.

For example, there is a mass exodus occurring, in the millions, of people leaving New York, Chicago, Baltimore, Seattle, Portland, and California. And they’re going to Phoenix, Scottsdale, Miami, Texas, Rocky Mountain states, Salt Lake City, Colorado. These places are booming. Mortgage rates are at all time lows, and there’s a housing shortage. Especially in the middle to higher end housing, with good school districts and good taxes. Commercial real estate hasn’t hit rock bottom yet, but Jim says he wouldn’t touch it for another year or more. But residential real estate is RED HOT.

Because of the loss of small business and the inability for small business to pay rental rates on their commercial spaces, the financing behind commercial is going bust. The investor who owns the property can’t pay the mortgage because the small business is unable to pay the rent.

Will the losses fall on the banks, then? Jim says no, not by and large. Because the banks took those loans but bundled them into commercial mortgage backed securities. They might be in your 401K.

What would you say to someone who has lost their job, or lost their business?

What Jim sees from employees who lost their jobs, or are in fear of losing their jobs, is that they are saving. Savings rates have skyrocketed. Now, he says, that is not a bad strategy. For the individual, that is a good strategy, but in the aggregate case, or the whole of all of these individuals saving, it is a disaster for our economy. The more savings you have the less consumption. If savings are increasing, the spending is decreasing. This is another reason we are in a depression, and now headed into a second technical recession. All of which make it very hard for us to dig our way out.

Jim advises people to look for jobs that are needed even in hard economic times. As hard as that is, for some, it is worth looking into as an alternative to going back to work in your traditional role that might have less of a place in a difficult economy.

Are they just going to keep printing money?

Yes, according to Jim. He shows us that we need to separate fiscal policy and monetary policy. Monetary policy is completely impotent. They will print more money, but rates are at zero. The Fed is probably not going to go into negative rates. The market could rates negative, however. By paying a premium in the secondary market, that gives you a negative yield to maturity, so you might see negative rates. In fact, Jim thinks we might see negative rates in the U.S. Treasury market, but that is a result, he says, of premiums paid in the secondary market trading. Not because of the Fed. The Fed is stuck at zero, so interest rate cuts are off the table.

The Fed, Jim says, has stated they might start raising rates in 2022 or 2023. Jim thinks that is not the case, and believes it could be 2040 before that happens. Research based on 650 cumulative years of post pandemic economies. COVID-19 is going to end up somewhere around 4th in a list of 15 great world pandemics. The average recovery time, where monetary policy and economic growth get back to normal is roughly 30-40 years.

Jim recounts his youth growing up with grandparents who lived through the Great Depression. Though it was over, the mentality of it wasn’t over. All the way until the late 1960’s, generations born after the great depression collected recyclables, and cans. It was a depression mentality, even in a fairly prosperous time.

Jim says, “Don’t wait to get back to normal. We’re not going back to normal. We’re going into a kind of new world.”

To read more from Jim Rickards, visit his website at and check out his newest book, “The New Great Depression.”