Bloomberg’s Mike McGlone Warns of a ‘Reset of a Lifetime’: Prepare for a Global Deflationary Recession

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As a seasoned crypto investor with a decade of experience navigating market cycles, I find Mike McGlone’s analysis both thought-provoking and sobering. His comparison of the current economic landscape to the late 1920s and early 1930s is not far-fetched, given my own personal journey through the 2008 financial crisis.

In a recent conversation, Mike McGlone – a Senior Commodity Strategist at Bloomberg Intelligence – shared his insightful perspective about the current economic situation. He spoke about an impending “generational shift,” which refers to the global recession with deflationary tendencies he predicts will occur soon. This outlook encompasses his views on the behavior of significant assets such as Bitcoin and gold, along with the potential consequences for the economy and financial markets at large.

McGlone started off the interview by bringing up his earlier prediction that Bitcoin might cause the markets to drop. He broke down this idea by stating that Bitcoin, previously known as the “front-runner in the race,” is now displaying vulnerabilities. He pointed out the Bitcoin-to-gold ratio, which reached its highest point during the most expansive monetary growth ever, and has since been gradually decreasing, suggesting a potential change in market trends. Despite an increase in investments into Bitcoin ETFs, McGlone mentioned that Bitcoin is not performing as well as gold or even some traditional stocks, hinting at a possible reversal of risk assets that could potentially signal a broader market downturn.

As a researcher, I’ve been observing the market trends closely, and I can’t help but highlight the outstanding performance of gold compared to other commodities. Despite a general downturn in broader commodity indices, gold has shown a consistent upward trend. This, I believe, reflects growing deflationary pressures globally, reminiscent of the financial crisis in 2008.

During the interview, McGlone depicted a worldwide economy precariously balanced on the brink of a deflationary recession. He offered several pieces of evidence, like the decrease in demand for diesel, unleaded gasoline, and container boards, to support his claim that economic activity is decelerating. McGlone highlighted the significant drop in natural gas prices as a strong indication of deflationary pressures building up. Additionally, he touched upon the effects of the Fed’s monetary policy, suggesting that although rate reductions are probable, they could arrive too tardily to halt the deflationary cycle he foresees.

McGlone emphasized that an increasing unemployment rate could lead the Federal Reserve to lower interest rates ahead of schedule. He projected that unemployment might reach 5% by the next year, which is an increase from the present 4.3%. He suggests that this rise, along with a deteriorating job market, may compel the Fed to take stronger monetary actions. However, he cautioned that these rate reductions might not be sufficient to prevent a recession, particularly if inflation persists and the economy keeps decelerating.

McGlone emphasized a compelling idea: we might be standing at the edge of a major financial overhaul, a “once-in-a-lifetime” adjustment. He explained that this transformation could potentially cause a substantial reversal in risky assets, especially stocks, which he considers inflated at the moment. McGlone drew parallels between the current market situation and the late 1920s and early 1930s, hinting that similar adjustments might lead to an extended phase of economic difficulty. To brace for this, McGlone advised investors to lessen their exposure to risky assets and instead concentrate on safer investments such as long-term U.S. Treasury bonds and gold.

McGlone touched upon the part central banks play in overcoming future obstacles. He pointed out that while central banks like the Federal Reserve have been primarily fighting inflation, the increasing threat of deflation might necessitate a major policy change. McGlone contends that the Fed’s past errors, including injecting too much liquidity into the economy, could worsen the upcoming recession. He proposed that central banks may eventually need to alter their approach, but cautioned that such a shift might come too late to prevent substantial economic harm.

Given his belief in deflation, McGlone expressed optimism about long-term U.S. Treasury bonds. He reasoned that these bonds usually perform well in a deflationary economy because investors look for safety. McGlone pointed out that the bond market is already showing signs of trouble, with the yield curve flattening and bond yields in key economies like China remaining low. He predicts that a decline in risky assets could trigger a move towards safe-haven investments, boosting demand for U.S. Treasuries and potentially pushing yields further down.

From my perspective as an analyst, I’ve noticed that commodities are finding themselves entangled in a deflationary cycle, according to McGlone’s insights. He emphasized that certain commodities, such as copper, have experienced short-term surges due to speculative activities; however, these have since retreated to lower price points. McGlone’s argument is that this descent aligns with a broader deflationary trend, as the demand for industrial commodities softens in response to decelerating global growth. He cautions that this pattern could intensify if the global economy deteriorates further, potentially leading to even steeper drops in commodity prices.

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2024-08-27 17:21