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An Incoming Economic Tsunami?

Are we prepared for what lies ahead?

Assalamualaikum Dear Brother/Sister,

We have seen major changes happening around us over the past few months. While the media continues to report details of number of cases, wearing masks and so on, the general public is distracted from what is happening in the background. This note is intended to raise awareness of a potential financial crisis that we're entering.

The economy is on its crutches. The unemployment rates skyrocketed and several businesses have been forced to close down. The stock market on the other hand has shown a "v shaped recovery" from the March lows, on the back of trillions of dollars of stimulus money the governments around the world are printing away. While this props up the stock market temporarily, it is not a long term solution. The stock market and the economy are thus very disconnected at this point. Several people are now making more money in unemployment than they have while they were working. Due to the reduced productivity in goods and services, the GDP is in the red. However, several people have put their stimulus checks into stocks that seem to continue to rise. This has resulted in a disconnect between value and price in the stock market. Case in point, Hertz stock rally after bankruptcy, Tesla stock rally etc. Most markets are significantly manipulated by big financial players. The unprecedented money printing is devaluing your hard earned money as well. Several financial pundits are forecasting a major economic crisis ahead of us for these very reasons. It is quite likely that if the current bearings hold true, we could see one of the biggest economic crisis of our lifetimes. The middle class will likely experience unprecedented poverty levels. The economic effects will likely far outweigh the health effects of the pandemic. Allahu a'alam.

This is the place where I add disclaimer to the fact that I'm not a financial adviser. You must do your own research before you make any financial decision. Without further adieu, I'll outline some potential ways to protect yourself from the potential incoming financial crisis.

In terms of fiat currency, the central banks around the world have slashed interest rates to zero or near zero to encourage people to spend money. There is not much the banks can do but to reduce the interest rates to negative if status quo holds. This means banks will take a cut of your savings. Also in the event of onset of a crisis, banks can legally bail in (pay deficits using the money in the bank accounts of its customers). This is not just a theory in textbooks, and the citizens of Greece can attest to that. It appears that China may be setting up for such a move soon. Several restrictions in accessing your money from the account will likely be put in place. An example of this is when the Indian government demonetized high-denomination banknotes in 2016. It may be best to have majority of your savings taken out of banks. Find ways to protect it. Diversify where and how you have your wealth stored.

Food prices are set to shoot up. Severe food shortages due to limited logistics, locust attacks, unprecedented flooding, labor shortages etc. around the world will likely lead to food prices rising through the roof. It is recommended that non perishable food be stocked up. At least a couple of months supply is recommended. If you can start growing some food, that would be ideal.

Real estate prices in big cities will likely see a major correction. This is true mostly for markets where price and value have a severe disconnect. Home prices in major markets like San Francisco, Vancouver and Toronto have seen dramatic increases in home prices. This has resulted in real estate bubbles that are ready to pop under the right circumstances. The governments have provided deferrals on mortgage payments for a period of time. But with unemployment rates still sitting high, defaults on payment is on the horizon. Similar to what occurred in 2008, when supply far exceeds demand, prices are bound to crash. People will likely look to move to more affordable markets where the prices are bound to increase. I'm not asking anyone to buy or sell homes on this basis. The intent is to merely open your eyes to the possibility lying ahead.

Precious metals like gold and silver are seen as hedge against inflation and market crashes. Gold and silver have seen massive gains over the past few weeks. Now would be a great time to get started on adding this to your portfolio if you don't already. Investing in precious metals is a great way to protect against financial uncertainty. I will have another post dedicated to this soon in shaa Allah.

Cryptocurrency is another option that can be studied as well. With all major financial players making major moves in the crypto space and the currency debasement that is occurring; cryptocurrencies like bitcoin and ethereum are breaking out on a bull run. Be advised, volatility is name of the game here.

Financial decisions should be made on a case to case basis. Please do your own research before you make a decision.

Last but not the least. Keep your body and soul healthy. Exercise, go out in the sun, do whatever it takes to keep yourself and your family healthy. Increase your ibadah and come closer to Allah. Whether we're going through ease or through hardship, we need Him. May Allah protect us from hardships and maintain our Eeman through testing times. Aameen.

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