|Market Report 3rd August 2020|
Welcome to my weekly report of the things which have caught my attention over the past week.
Shockwaves reverberated around markets on Friday as the US recorded it’s biggest economic contraction in history with the economy down 32.9% for the 2nd quarter. This is very worrying as the US is yet to reach the peak of the pandemic and furlough schemes ended on 31st July 2020 suggesting unemployment will escalate.
In Europe, countries also released their GDP 2nd quarter figures with Spain down 18.9%, France 13.8%, Italy 12.1% and Germany 10.1%. Britain has not yet released it’s figures.
Gas has long been one of Russia’s biggest exports, but the surge in demand for gold has seen Russian exports in metals exceed oil for the first time. Russia’s Central Bank reported that the country’s gold exports jumped to 65.4 tons in April and May with a value of approximately US$3.55 billion. In the same period natural gas exports dropped to US$2.4 billion. The drop in demand is in line with global drops in demand due to the pandemic.
Chinese banks start banning their clients from purchasing gold. They have taken measures to prevent customers from buying gold, platinum, palladium and other precious metal-related products through them. The Shanghai Gold Exchange and Bank of China have also stopped opening new accounts for trading.
TikTok a growing video platform is broiled in controversy due to it being a Chinese owned social media company. With the ever-increasing hostilities between US, UK and China this company has come under fire with espionage claims. US Government have told China they must sell their US arm of the company or face closure.
Gold – reached an all time high before dropping back slightly to US$1975.85 but that still equates to a weekly increase of 3.85%.
Goldman Sachs has revised its 12-month gold forecast to $2300 per troy ounce. Investors in Gold remain mainly speculators although mainstream investors are likely to enter the market if gold reaches US$2000.
For the second consecutive week more than US$100 million has flowed into Gold ETC’s due to the volatility offering trading opportunities
Silver – closed at US$24.41 with a weekly growth of 7.11%
Gold:Silver Ratio – which had been steadily dropping increased slightly over the week to 81.48 indicating silver is still undervalued and offers the best investment opportunities at present.
Oil – the price has been moving sideways, at $40 a barrel, for a couple of weeks but is now going down again with WTI Crude closing $39.73. Saudi Arabia and India announce they are likely to cut back production.
Chevron Coporation reported it’s worse losses in history on Friday with a net loss of US$8.3 billion. A combination of reduction in demand due to the pandemic and US sanctions against Venezuela which force the company to close down it’s operations there.
Other oil companies are also struggling with UK, company BP has indicated it is likely to cancel their dividends. This is a huge blow to pension companies who rely on dividends to boost their revenues for the pension schemes.
Alternative Energy – After 35 years of negotiating, planning and delays the 5 year plan to build the largest fusion reactor in France has finally started. The project is funded by US, Russia, China, India, Japan and South Korea. It will be the largest tokmak fusion device capable of generating 500MW of thermal fusion energy as soon as 2025.
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What is the Gold Standard and How Does it Work?
Over recent months there has been growing support in the EU to go back to a Gold Standard. But what is the Gold Standard and how does it work? Will it work in a modern society?
The Gold Standard was around for hundreds of years. It was a commitment by participating countries to fix the prices of their domestic currencies to a specified amount of gold. National money and other forms of money were freely converted into gold at the fixed price. The UK used a type of gold based standard as far back as1717 before formally adopting the Gold Standard in 1819. In 1834, the United States fixed the price of gold at $20.67 per ounce, where it remained until 1933. Other major countries joined the gold standard in the 1870s. The period from 1880 to 1914 is known as the classical gold standard.
Why did the Gold Standard Break Down?
During WW1 countries needed to print money to pay for the cost of war. It became impossible for the countries to hold enough gold in reserves to cover all the currency being printed. It was briefly reinstated from 1925 to 1931 and called the Gold Exchange Standard. Under this standard, countries could hold gold or dollars or pounds as reserves, except for the United States and the United Kingdom, which held reserves only in gold. This Gold Exchange Standard broke down in 1931 following Britain’s departure from it due to it being unsustainable to keep gold reserves with the amount of debt and capital expenditure required for the British economy.
In 1933, during the Great Depression in the US, President Franklin D. Roosevelt nationalized gold owned by private citizens. The Gold Exchange Standard was abandoned as the US tried to create jobs to help bring the country out of depression.
Replacing the Gold Standard with a Dollar Based Standard
The Bretton Woods agreement was created in July 1944 when 730 representatives from 44 countries, mostly WWII Allies got together at Bretton Woods, New Hampshire, US.
Under the agreement, countries promised that their central banks would maintain fixed exchange rates between fiat currencies and US dollars. If a country's currency value became too weak relative to the dollar, the bank would buy up its currency in foreign exchange markets. This would lower the supply of the currency and raise the price. If the value of the currency was too high then the central bank would print more money, thereby, reducing the currency’s price. Under the agreement trade wars would not exist as each country agreed to regulate their currency so no country could benefit from manipulating the value of their currency. The agreement meant that the Gold Standard ceased to exist and the world move onto the Dollar Standard. The dollar was pegged to a set value of gold 1/35
The Collapse of the Bretton Woods System
In 1971, the United States was suffering from massive stagflation—a combination of inflation and recession, which, in turn has an effect on unemployment and economic growth prospects.
In response to an alarming drop in value of the US dollar, caused by too much currency in circulation, President Nixon started to devalue the dollar against gold. Nixon revalued the dollar to 1/38 of an ounce of gold, then 1/42 of an ounce. The devaluation plan backfired. It created a run on the U.S. gold reserves at Fort Knox as people redeemed their quickly devaluing dollars for gold.
In 1971, Nixon passed legislation removing the dollar from gold backing. Without price controls, gold quickly shot up to $120 per ounce ending the Bretton Woods system.
The creation of Bretton Woods resulted in countries pegging their currencies to the U.S. dollar. In turn, the dollar was pegged to the price of gold, and the U.S. became dominant in the world economy. The U.S. was the only nation that could print the globally accepted currency, and countries had more flexibility than they did with the old gold standard.
When the dollar ceased to be pegged to the price of gold, it became the monetary standard with other currencies pegging their currencies to it.
A Society Based on Debt
In a previous blog, I discussed how today’s economies are based on debt. Every pound, dollar, euro or whatever the currency is for a specific country is loaned into existence.
Relevant governments agree to pay interest to holders of the debt (Bonds) until the debt is repaid. Successive governments need to generate more debt each year to cover the costs of servicing the debt, running their infrastructure services such as hospital, schools and benefits. There is insufficient tax take each year to balance the books and so more money has to be raised to meet the ever-increasing demand. Governments are in a continuous spiral of creating more and more debt to provide for the services within their countries.
The growth of debt is exponential, just look at how much was printed by each country for the first wave coronavirus. America was in the Trillions of Dollars, Britain was £600+ billion and growing.
In the 2008-2014 Great Recession, governments adopted what was called “Austerity Measures” where they tried to cut back on debt spending and bring their countries debt under control. The measures were in place for many years and was an experiment that was doomed to fail not only as countries could not balance their books (despite coming up with creative ways to seem as if they had) but it had far reaching consequences to economic growth with many countries barely coming out of recession.(again figures were manipulated for it to appear they had) When the world economies are based on debt suddenly telling its citizens to reduce their own debt, start saving and stop shopping means the flow of income for growth stops. It reduces the tax intake for countries forcing them to lend more money into existence. It’s a vicious cycle.
A Gold Standard
This brings me back to the opening statement that EU are floating the idea of going onto a gold standard. Will it work in modern society?
My belief is no. Bullion has had a free run since 1971 and has become the safe haven for investors. With the amounts physically held in storage by investors and the growing debt based economy it is doubtful that there is enough gold in circulation to meet demand.
The effect of coronavirus around the globe has seen many mines closed and the production of gold and silver has been greatly reduced. Hence, when economies are struggling and people are looking for safe haven investments there is insufficient supply to meet demand resulting in the soaring prices we see today. Most of the growth to date has been speculative with very little traditional investment. It will be interesting to see where the price is likely to go once mainstream investors start moving into gold and silver.
China has on several occasions, raised the prospect of moving from dollar based markets to yuan based markets. As a country which, denies it, but undoubtedly, manipulates the price of its currency the prospect of moving to a Yuan based global market is unlikely. However, it is possible there could be some break away countries that support the Yuan and there could be 2 separate currency markets one pegged against the dollar and one pegged against the yuan.
Central Banks have started to purchase gold and hold reserves. Since the introduction of the Basel3 agreement in April 2019, gold was deemed a zero risk asset many banks started to purchase gold to increase their reserves.
Gold would need to be nationalised for governments to move onto a gold standard again. With the amount in circulation, with reserves held in banks, any form of nationalisation would collapse the world banking system.
I am sure, there are economists with more knowledge than I have about the money markets and the global economy who are behind the scenes trying to come up with a way of introducing a new type of gold standard, especially if, the EU are looking at it. But, my belief is the economy is too fragile to be able to cope with the transition to a new gold standard. Any transition, if implemented would most likely be once there has been a collapse of economies and currencies. Only time will tell.
Market Report 27th July 2020
A round up of things in the markets that have caught my eye during the past week.
Debenhams are looking for a buyer for the business. London Investment Bank, Lazard, have been called in to kickstart the process.
IAG are considering a shares issue to raise £2.7 billion. The are the parent company of British Airways and Iberia Airways both have been particularly hit hard with lockdown. The lockdowns and no go travel areas continue to hit the travel industry very hard.
British Government announced more investment opportunities with better interest rates through NS&I income guaranteed bonds. NS&I is the governments arm for raising domestic cash to go towards government coffers. Traditionally, they would look to raise around £6 billion however this time they are looking to raise £40 billion hence the favourable rates.
The EU are again pushing for currencies to go back on the gold standard. There is definitely some interest and could be one of the reasons reserve banks have been stock piling gold, but whether or not it is feasible remains to be seen. My blog on 30th July will explain more about the gold standard.
Gold – money has been pouring out of the share market and into gold. Gold was up to $1902.57 an increase of 5.02% for the week.
Silver – which was lagging behind gold has become more favourable over the past few weeks with some accelerated growth. Silver is up 50.52% over a month. This week it went up 17.69%
Gold:Silver Ratio – as silver continues to outperform gold the ratio continues to drop. This week it stands at 83.48. So, silver still remains a good investment opportunity but now is the time to start thinking about the percentages of silver to sell as the market nears 50 percent which is very likely in the next few weeks.
Oil – is holding around $40 a barrel. However, there is strong suggestions that the prices are being manipulated by the rising tensions between the US and China.
Mexico placed an oil hedge in March known as the Hacienda on Wall Street. It was one of the biggest and most secretive hedges in history. When oil prices dropped the success of the hedge generated so much income it is thought to have saved Mexico’s economy from ruin. Russia is currently looking at a similar hedge buy staying coy about it.
Alternative Energy – China is in the market to bolster it’s holdings in hydro power and is eyeing up international companies. The Chinese prefer smaller projects in the range of 1-2 GW.
Pumped storages are increasingly gaining popularity as the instalment of wind and solar projects keeps growing. The intermittent nature of renewables strengthens the need for pumped storage.
Both the US share markets and the UK markets closed down on Friday over fears of the US and China tensions, increase in second wave - coronavirus impact on the markets with 40 countries now facing increases of infections and the infection rate. Hong Kong is on a third wave.
As we head into more turbulent economic times the markets become more interactive and volatile offering many investment opportunities.
Are You Part of the 92% or the 8%?
It’s an interesting question and one that triggered a few responses to a blog site I run when I wrote this article in 2012. I’ve repeated sections of the blog here as it is worth reminding readers about the statistics.
Several years ago, a class of teenagers with dreams and aspirations for their futures became part of a study group where they participated in a lifetime study. This is the basis for the statistics stated below supplied by Harvard University.
The students selected were from similar backgrounds. They did not come from privileged backgrounds or have above average incomes or above average intelligence. They were ordinary teenagers who went on to live their adult lives.
The results of the study are very interesting as of 100 pupils coming up to their 65th birthday – the then retirement age – the statistics were;-
38 were dead
62 were still alive. Of those 62 still alive
38 were financially broke
16 still needed to work just to survive
7 had retired and had a liveable income in their retirement years
1 was wealthy
Only 8 achieved financial independence and only 1 was wealthy out of 100 participants of the study.
This study raised a lot of questions for me such as why did only 8% achieve financial independence, when during this period people tended to work with the same employer for most of their lives and retire with a golden handshake and pension for life. The other question is why did only 1% become wealthy.
The common themes I have come across while coaching clients is
1. No plan and no goals to become wealthy
2. Lack of knowledge about investing
3. Buying liabilities instead of assets while thinking they are buying assets
4. Lack of confidence or desire to prepare for retirement often expecting the government to provide for the future.
5. A belief that investing is too complicated for them to understand.
No Plan and No Goal to Become Wealthy.
It is very rare that wealth just happens. You have to plan for it.
I was in my teens when I became fascinated with wealth and lifestyle. I studied wealthy people, what they were doing and how. I worked in the Inland Revenue and Banking so had an understanding of money but it wasn’t until I was 39 years old that I realised the reason I didn’t become wealthy was because there was no plan.
I created a plan and some action steps and retired by the age of 43 wealthy enough to never have to work again.
There is still a stigma in society that people shouldn’t talk about money, should be seen to be wealthy and as a consequence very few people actually put a plan together and action steps to ensure their wealth and dream lifestyle are achieved.
Lack of Knowledge about Investing
Since the Great Recession of 2008-2014 the world’s governments have been slowly passing the responsibility to the general public to provide for their own futures. They have amended work pension schemes and entitlements to state pensions while failing to provide the education for people to be able to make their own informed decisions.
Amendments to legislation for IFA’s have seen a big hole develop in the market where IFA’s have to receive payment from the customer so the IFA is no longer tied to specific products. This means the IFA or even the banks, who used to provide advise are looking for clients who have a substantial amount to invest. The person with £1000 or £5000 with no financial education are suddenly left with no support, no education and no understanding of how to provide for their futures.
The £2.73 Club was created to fulfil that role of educating clients, who have little or no financial education and little or no money and teach them how to understand the markets and how to think about providing for their futures.
Buying Liabilities instead of Assets While Thinking they are Buying Assets
Rob Kiyosaki author of the Rich Dad, Poor Dad books came up with a fantastic description which easily explains the difference between assets and liabilities. An Asset is something that puts money in your pocket. A Liability is something which takes money out of your pocket. A very simple yet effective way of understanding Assets and Liabilities.
Each time you buy something ask yourself the question, will it put money in my pocket or take it out? Once you start acquiring income producing assets then money flows in on a regular basis and provides an income for the life of the asset or as long as you hold it. The more assets you acquire the wealthier you become.
Lack of Confidence or Desire to Prepare for Retirement often Expecting the Government to Provide for the Future.
Governments have lulled people into a sense of false security by repeatedly stating part of the taxes you pay are for your retirement so you receive a pension at retirement age. Sadly, all models the government come up with for setting the taxes aside either don’t eventuate or do not provide the returns needed to sustain a pension fund.
As each new government realises there is lack of funding for the ever increasing, older population, the panic sets in and they start tinkering around reducing the level of payment and increasing the retirement age.
All the while taxpayers believe they have contributed enough to a pot to receive a good pension when in reality there is only a very basic pension which often doesn’t even cover property taxes, utilities, food or clothing let alone provide for the lifestyle retirees were expecting.
The best time to start preparing for your pension is at the youngest possible age. Parents who realise this often start savings plans for their kids which can be contributed to when the kid becomes an adult. Adults immediately they start work should be thinking of setting aside a percentage of their income, around 10% if possible, to ensure they have a fund for life’s emergencies, redundancies and retirement. The only person who will look after you in your old age is you. The sooner you prepare for it the better.
A Belief that Investing is too Complicated for them to Understand.
Investing is very simple. Learning to invest is very simple. People make it seem complicated so you will buy their products and services. You don’t need to be a rocket scientist to succeed at investing. All you need is a plan to become wealthy, education so you know what you like or don’t like and an action plan to get you there. Don’t let other people rob you of your faith and ability to become a very successful investor and live the lifestyle of your dreams.
If you would like more information about learning investing skills please contact us on firstname.lastname@example.org let us help you learn the knowledge and skills of investing so you can become part of the 8% who live a comfortable life with no money worries.
Market Report 20th July 2020
A weekly roundup of the things which have caught my eye during the past week.
A publican in England posted 2 job vacancies on his twitter feed. Normally this would attract around a dozen applications. This time though he received 484. A sign of the growing unemployment in the UK. It has been estimated that 650,000 jobs have disappeared as a result of the lockdown.
Bellway House Builders ask subcontractors to reduce their prices by 5%. While they are keen to stress their forward order book has 6000 builds this is down compared to pre lockdown.
British airways announces, it has retired its fleet of 747 aeroplanes 3 years ahead of targets. With the skyways opening up again they have decided it is not worth the costs to bring the 747s back into service. They will now focus their longhaul flight program on Dreamliner planes.
Ryanair have removed fees on bookings, for a short period, in an effort to attract travellers to fly with them.
Marks & Spencers announce they are closing down more stores another blow to the high street which is struggling to attract back businesses.
Community Access to Cash pilot is launched to provide banking systems to towns and villages around the UK who have lost all the banking services and atm machines. There are 8 pilots being launched which should be operational from September for the 6 months trial period.
EU stock markets closed near a one-month high as EU leaders gather to discuss a rescue package. Initially, it was flouted there would be a 500 billion euros fund to support countries. This has been knocked back and currently discussions are around a smaller amount nearer 390 billion euros.
All markets have been positive about a possible vaccine with the UK placing an order for 90 million injections with Pfizer.
US markets declined on the fear of a second wave virus and states being put back into lockdown.
Gold – the price is fairly static with a slight increase of 0.16% over the week. Russia has now become the largest exporter of Gold. China is trying to buy gold mines and production facilities globally with Australia and Canada trying to protect businesses from hostile Chinese takeover bids.
Silver – the increase also slowed on silver with the weekly increase of 1.31%. Recent reports show silver demand is continuing to increase while the supply of silver is restricted due to a variety of factors. Silver is a by-product of mining other metals and mining has slowed due to lockdowns around the globe. With businesses getting back into manufacturing and silver being a consumable the demand has increased. The gold:silver ratio is attracting more investors into silver.
Gold:Silver ratio – continues to decline and is down to 94.47. While it is still dropping, silver still remains an undervalued asset.
Oil - OPEC and Russia are trying to reach agreement on the quantity of oil output. They are hoping to reach an agreement that will go through to 2021 or even 2022. Renewed fighting between Azerbaijan and Armenia together with greater conflict between Russia and Turkey is threatening the vital Baku-Turkey pipeline for oil and gas transfer to many countries.
Nuclear Fusion – tests were successful this week in the quest for unlimited energy from nuclear fusion. Over the past few years, the size of operations/testing has been upscaled. There is still a long way to go to prove stability in a full scale working model but there is optimism with the successes of the latest upscale.
Investing is Boring
Think investing is all about excitement and glamour? Think again. Investing is dull and boring.
When talking about investing many people imagine the share market. They think instantly about traders screaming at one another across a crowded room. They imagine prices going up and down, making or losing thousands of pounds in a blink of an eye. Most remember the movies “Wall Street” with Michael Douglas and “Wolf of Wall Street” with Leonardo di Caprio. But, there is a big difference between being and investor and being a trader. Traders watch the markets constantly looking for the next trader. Yes, they can lose money in the blink of an eye.
Investors, on the other hand, have a plan to become wealthy. Their plan will include buying income producing assets which they hold for a long time before selling, if they do indeed sell. A large proportion of investors never sell instead passing their assets on to loved ones upon death.
The plan will be reliant upon the current markets, looking for the right investment opportunities. All investments have cycles where the investment is up or down. Investors will be patiently waiting for the right opportunity when they can buy low and sell high. Patience is the key. They can’t force markets to do what they want, instead they have to sit back and wait for the markets to come to them. I liken this to watching paint dry. It’s boring.
There are 4 key asset classes for investing. There are tens of thousands of different investments which filter into 4 key categories – business; property; paper and cash. Within each of those categories are sub-categories. For instance, if you look at property you can invest in residential property; commercial property; holiday lets; storage units; garages or land. Then there are more specialist areas such as within holiday lets you can let rooms; whole houses; villas; apartments; caravans; yurts etc. As you can see, each key category can be split down to find something to suit someone somewhere. Each of the investment categories take time to build. A business doesn’t grow overnight you have to build it step by step. It’s a fluke if you buy a share that takes your £100 to £1 million over night. You have to keep buying more shares and watch someone else build a business so your share value goes up.
When you become an investor, you must have your why. When I work with clients, I ask them to create their perfect day, then break it down into steps of easy to achieve goals. These goals will keep them focused on why they started investing. So, during the long boring period while waiting for the investment to work its magic they have the dream and the vision of their goal to help them stay focused and patient.
However, with the £2.73 Club, you can become a millionaire in 5 years. You can start building your dream lifestyle and the wealth you need to maintain it. While 5 years might seem a long time, it is a small time commitment. While your investments are boringly growing you can continue doing what you normally do just putting a few hours a month into growing your future dream lifestyle.
Investing is boring. You have to be patient to give the investments time to grow and generate the type of income you want. However, there is no better time to start your investment journey than now.
If you would like more information about the next Mastermind Group training starting in August please contact me on email@example.com so you too can discover just how boring investing is.
Market Report 13th July 2020
This week my focus has been on China. They are in the news for a variety of reasons. The interesting thing with China is they are like magicians in that they draw your attention to one area when they are trying to distract you from seeing what is really going on. Reading between the lines is key to understanding what they are doing and what impact that has on the financial markets. Generally, the markets seem to go with what seems the least noxious.
In the news this week with China:-
· They have again raised using the Yuan as a counter currency to the US Dollars. This was first raised during the 2008 credit crunch; when they started the silk road project they raised it again and again they are raising the issue possibly due to all the bad news stories hitting the headlines
· US Congress passes legislation requiring Chinese companies on the NYSE to be delisted due to their failure to allow US regulators to audit the companies. A requirement of all companies on the US Markets
· Fake Gold worth 22% of China’s annual production, held in storage as security for Kingold loans is found to be guilded copper rather than gold bullion.
· The crackdown in Hong Kong has resulted in many countries withdrawing political connections with China including withdrawal of extradition orders
· Reports indicate the incredible growth in the Chinese Share Market is being manipulated by the Chinese government with major concerns being raised internationally through various organisations including the IMF.
· China has created friction on several borders with multiple countries sending military into the region this includes the Indian border, and the Chinese sea borders where new military bases are being established. Hong Kong is a major concern.
UK economy is faltering with the country facing major business closures and redundancies. The incentives from the government to secure jobs is being turned down by major companies. Primark announced the incentive was worth £30 million but the cost to the company during coronavirus was £800 million.
Boots, John Lewis, M&S and a host of pubs, restaurants are all indicating they will be closing stores and it is likely there will be 250,000 redundancies.
Gold – has remained fairly flat this week with a 1.36% increase to $1799.74
Silver – continues it’s upward trend reaching $19.07 before dropping back to $18.75 but even at this price it has gone up 3.73% in one week.
Gold:Silver Ratio – is reducing down from a high of 125 to this week being 95.93 indicating silver is still the best investment opportunity.
Oil – Arab Countries are struggling with the drastic cuts in oil production which has results in a severe drop in oil dollars affecting the liquidity of Middle East Banks. Governments are encouraging mergers to keep some banks afloat with reports that $440 billion in deal mergers is currently on the table.
Natural Gas – Egypt has issued a decree for all new cars in the country to be run on Natural Gas.
Alternative Energy – Scientists find a way to harvest water droplets and converting them into electricity. This means the new method can generate electricity from rain and other sources using a system of converting mechanical energy to electricial energy. The stability of the system allows the energy to be stored in excess of 100 days with little degradation.
Fake Gold, Shadow Banking and How it Affects You.
Why does finding 83 tonnes of fake gold in a Chinese Vault have major impact on the Global Shadow Banking industry and how is that likely to affect you?
Before we talk about the fake gold, let’s look at Shadow Banking and what it is.
What is Shadow Banking
Shadow banking is a generic term used to describe financial activities that take place between non-bank financial institutions globally.
Some of the different types of institutions you would find using the shadow banking system are investment banks, mortgage lenders, money market funds, insurance companies, hedge funds, private equity funds and loans which are not regulated.
The shadow banking system is not regulated, and has successfully fought against regulation, on the grounds that, unlike traditional banks and credit unions, the organisations which operate in the shadow banking industry do not take “over the counter” deposits from clients.
Derivatives, mortgage bundle packaging and peer-2-peer lending have been major growth areas in the shadow banking system. The value of these types investments is unknown but it has been estimated that derivatives alone are in the quadrillions of dollars value bracket. The Chinese shadow banking system is said to be worth $3 Trillion per year.
Since 2017, China entered the derivatives market directly targeting risky financial practices such as excessive borrowing and speculation in equities. This has had a flow-on effect of boosting the Chinese Share Market and creating a “cannot fail” attitude of many investors in the Chinese Markets.
Shadow banking institutions were deemed to be the innovators in the financial markets and were able to finance deals, such as real estate and other major lending which would normally, not be accepted due to rules on capital and liquidity that are required by traditional lenders. These regulations are in place to prevent bank failures, runs on banks and supposedly financial crises.
China is now at the centre of one of the biggest gold scams in recent times. This is due to a company call kingold. The company is supposed to have taken out risky high value loan for various projects which failed due to various economic circumstances.
The loans were backed by gold assets (83 tonnes of gold valued at 14 billion yuan) and insurance company’s underwrote the loans due to the gold backing. Kingold defaulted on loans and the lenders attempted to seize gold bars to cover the defaults. However, it was discovered that 83 tonnes of gold, set aside as assets for the loans are in fact, gilded copper.
There are major repurcussions from this in the shadow banking system as 5 Chinese banks were behind the loans and it is unknown how they will be affected and if the market could collapse. 83 Tonnes of Gold equates to 22% of China’s annual gold production affecting the gold market.
The credibility of the insurance companies is affected as they failed to audit the gold.
In addition, US lawmakers have started removing Chinese companies from the US share markets as they have failed to allow auditing.
How Does this Affect You?
In 2008, the shadow banking system (called the sub-prime market) was the catalyst for the credit crunch and subsequent global recessions. The system broke down as a result of several economic situations which affected the public and institutions being able to meet the payments. This was exacerbated by the hurricane which hit New Orleans where many home owners were uninsured and just walked away from their mortgage payments. In addition many mortgages were coming out of the fixed term adding to borrowers unable to make payments.
Asset security was undervalued or the value not even know and trust between banks ceased to exist. In his book, Mervyn King, the current Bank of England Governor, says that if he and Hank Paulson, his equivalent in the US were trying to keep the markets working. They were just 30 minutes away from the total collapse of the financial markets and fiat currency.
Wind forward to 2020, history is repeating itself and stability in the shadow banking system is on shaky ground. Instead of the hurricane, we have the coronavirus outbreak with the economic repercussions from the fallout. We are facing a perfect storm which could trigger one of the biggest economic crashes in history.
How Can you Protect Yourself?
Financial education is key to protecting your wealth and your future. Bullion is definitely a major investment opportunity, as I write this, which should not be overlooked. Both Silver and Gold provide a hedge against downturns and insecurity within the markets.
For example, over the past month as all this news is breaking together with coronavirus second wave, gold has risen in price by 5.30% and silver has gone up 6.79%.
To learn more about the investment programs we run join our FB investment group https://www.facebook.com/groups/1032901670065445 or contact us for more details at firstname.lastname@example.org
Market Report 6th July 2020
World economies are struggling with the fallout of lockdown. As we head into recession and probable depression the second wave of virus infections has started with two US states going into secondary lockdown and several others introducing restrictions. Spain has one region in semi-lockdown and 2 regions in full lockdown while UK has one city in lockdown. A fragile economy struggling to recover from the first round of lockdowns is hit even harder with a second round of lockdowns. But, in turbulent times there are always opportunities which will become more visible in coming months.
Casual Dining Group called in the administrators this week. They own Café Rouge, Bella Italia and Las Iguanas. This follows Carluccios and Chiquitos having already closed, together with the closure of Jamie Oliver’s Restaurants a few weeks ago sees the restaurant industry struggling. In 2008 when the restaurant chains closed local fast food shops such as Fish & Chip Shops boomed.
Markets remain volatile. They were subdued on Friday with the US markets shut for 4th July celebrations. FTSE100 closed lower as investors in UK and Europe took profits.
In China, the government has seized profits from the banks to help prop up the economy. Chinese banks total take is expected to add 1.5 Trillion Yuan to government coffers.
Gold – the value remained static at US$1778 per troy ounce.
Silver – has steadily increased in value closing at US$18.41 an increase of 1.76% for the week. Silver is up 5.22% for the month. With the gold:silver ration at 98.30 this week silver still remains under valued and offering good investment opportunities.
Oil – this market is very active, volatile and very much in the danger zone. Elon Musk’s Tesla developments will see the use of cobalt disappear from electric cars. Cobalt is very expensive and accounts for 40% of the total cost of a car. In addition, lithium-ion batteries are being replaced with lithium-iron batteries which are far more efficient and will allow cars to travel up to 400 miles before needing a recharge making electric cars more affordable and more attractive. With the zero emission standards set for trucks starting to come into effect from 2024 and global political issues the oil industry is looking less vibrant for future investment.
Gas – natural gas is at very low prices and offers good investment opportunities. Warren Buffett announces Berkshire Hathaway has purchased 25% stake in Cove Point LNG with a $4Billion purchase tag and $5Billion towards reducing debt.
Mining – In Spain, the lockdown has had an impact on the use of coal with all coal plants being closed ahead of schedule with many plants unlikely to reopen.
Trump last year signed a deal allowing mining in Space. NASA this week confirmed the viability of mining the moon within 5 years as it has identified various metals and minerals in craters. Preliminary reports show the deeper the crater the better the concentration of metals meaning they can be mined in a very specific location reducing costs of searching and deploying mining facilities.
For more information about training courses and investment opportunities join us at https://www.facebook.com/groups/1032901670065445
What is Money Flow and Why is it Important to your Investing Strategy?
My speciality for investing is watching the money flow. By watching this I am able to see where the next investment high or low is likely to be. As someone who has always worked in the money world, I started with Inland Revenue, UK, in 1977, moved to New Zealand and went into Banking and for the past 30 years have been an investor, understanding the way money flows ensures I can move into the right investments at the right time to get the best return on my investments.
What is Money Flow?
In a previous blog, I discussed how all money is loaned into existence. This results in the world having an economy which is based on debt. Governments create money through quantitative easing and bonds. They issue the money to pay for the services demanded by the citizens of the countries – hospitals, schools, roads, transport etc. There is never enough income from taxes to meet the demand and since 2008 we have seen more and more quantitative easing being used to prop governments and banks, and to pay interest on the money that has been created. This has caused governments to have high debt.
Coronavirus lockdown resulted in trillions of dollars; trillions of pounds; trillions of euros and whatever currency a country uses, being loaned into existence. Debt levels for governments exploded to record levels of debt.
Banks act as the “middlemen” for governments. The buy and on sell the bonds when issued, they create bonds to raise funds for corporate businesses. The very businesses which build the road, schools, hospitals that society demands. Banks need to be able to make money other than just through customer deposits. Hence, most banks have an investment arm as they need to make a return on the money.
The world of investing has millions of different types of investments that can be filtered down to just 4 categories – Property, Business, Paper and Cash. Within each of those categories are tens of thousands of investments opportunities. The movement of money into different categories creates highs and lows as money flows between the categories.
I think the number 1 skill of an investor is to buy low and sell high to the extent that every investor needs to know where the money is flowing from and where it is flowing to.
All investments have a high value and a low value. No market is ever static. Economies have ups and downs that are referred to as boom times and recessions. In the UK for instance, a recession occurs every decade. Over the past 50 years there were recessions in 1973-1975; 1980-1981; 1991-1992; 2008-2009 (officially) although the effects and negative quarters went through to 2014. Here we are in 2020 entering the next recession. During recessions, while investments are going down there are investments that boom.
Contrarian Investors will follow where the money is moving to watching which investments are going down and which are going upwards. As investments are going down investors will be waiting for the right time to buy. As investments are going up, investors will be watching which investments are in demand and selling them for a profit.
Money flow is important as it gives investors time to ensure they have liquidity to take advantage of the next investment opportunity. It’s like having a crystal ball that lets you see what could happen in the market over the next few months or years.
The definition of probability is – the extent to which something is likely to happen. Investors have to be patient and wait for the opportunities to come to them. I describe investing as watching paint dry, because you have to be patient and let the markets come to you. You cannot force a market as you will definitely lose money, but you can watch the flow of money and look at the probability that this is the next investment to get into or the next to get out of and prepare for it.
Why is Money Flow Important?
Money flow provides the investor with the probability that certain events could happen so the investor can prepare to take advantage of the opportunity.
A friend of mine has a saying, opportunity comes to pass, it doesn’t wait. Opportunities are always around us watching money flows allows you to be ready to grab the opportunity as it passes by.
Market Report 29th June 2020
My round up of what has happened in the markets for the past week.
Intu, the company owning 14 shopping malls in England and Scotland went into administration as shops failed to pay their rent on their units. Intu reportedly received on 13% of the quarterly rents due.
The collapse of Wirecard with their assets being frozen worldwide by regulators has major global repercussions. Wirecard provides a money processing platform and risk management system to so many international companies , pre-paid credit cards, mobile phone payments and online shopping carts that the fallout and losses to consumers could be enormous.
The IMF (International Monetary Fund) issued a warning to share investors about a 2nd Coronavirus Wave as it believes investors and trades have lost all reality and share markets are not reflecting the true economic situation
Facebook took a hammering on share markets on Friday. It lost USD56 billion in value as leading companies withdrew advertising from Facebook over its failure to control hate speech
Amazon purchases start up company Zoox for $1.2 billion as it continues its acquisitions into the autonomous vehicles market.
Gold – following the IMF warning about the share market the Gold World Council recorded 975,000 ounces of gold was bought through EFTs in 1 day of trading. A record. This resulted in gold hitting its highest value since 2012
Silver – ration remains high at 08.51 meaning silver continues to be undervalued and still offers good investment opportunities
Oil – prices which had been recovery since Covid-19 lockdown collapse having reached $40 a barrel pulled back to $38 a barrel on Friday. This was due to US increases in virus numbers causing governors in 2 US states (Florida and Texas) to start reinstating lockdown measures. Texas announced the closure of bars, cafes and restaurants.
California passed legislation forcing all trucks to have zero emissions by 2035. This will be implemented through incremental steps starting in 2024.
The global economy remains fragile and extremely volatile. For me, physical holdings of gold and silver bullions still remain the best investment options at present.
For more information about bullion investing watch the video below
Seeing the Future
I’ve written this blog to answer the many questions I’m receiving at the moment about a series of videos that Robert Kiyosaki has issued during the lockdown which have caused confusion. Robert Kiyosaki is a visionary and a genius at understanding how the financial markets work. He is especially good at seeing the impact today’s financial decisions and legislation have on tomorrow’s markets. What Robert Kiyosaki does is supply you with a certain amount of information, get you to do research for yourself, think about what you are reading and come to your own conclusions.
As an Investor, I follow the money, watching which markets it is leaving and which ones it is being invested into. By watching the money flow, I can make decisions about where I think the markets and the economy are heading. So, I understand some of what Robert is talking about but I look at it from a totally different perspective.
This blog will address some of my interpretation of what the impact of certain decisions has on the investment world that I operate within. Please remember, this is not investment advice but rather an interpretation of what I am seeing and how that impacts my decisions on the way I invest.
What is the Secondary Market?
In the videos, Robert Kiyosaki talks about the collapse of the Secondary Market in September 2019 and how the lockdown has been used to cover up pumping additional funds into the banks and lenders. So, what is the Secondary Market and how does it affect you?
The Primary Market is the transaction between the bank/lender and the customer. For banks to lend money they need deposits. Once a client deposits the money the bank can then lend more money out.
The Secondary Market, is the credit facilities created as a result of the deposits being made by customers. (Refer to my blog All Money is Loaned into Existence). There are many different Secondary Markets depending on the investment.
For example, borrowing money to purchase a property. The bank does all the checks and lends the money. Then along the way they bundle the mortgages together and sell to an investment company or another lender. The types of loans can be varied with some being good loans and some being poorer valued loans. This frees up liquidity for the original bank and provides the secondary lender with an income for their investment. Secondary Markets tend to be between investors rather than consumer/lender.
Secondary Market Crashes
A Secondary Market Crash often occurs when there is a lack of confidence between banks and Investors generally over the lack of the genuine asset value. Crashes have occurred throughout history so is nothing new. It is just the amounts involved keep getting larger.
The crash of 2008, occurred for many reasons but one being the lending packages that were being on sold to investors where the assets were overvalued or the asset backing didn’t exist for the lending packages. For instance, just before the 2008 crash there was the devastation of the New Orleans Hurricane which saw many families walk away from their homes due to having mortgages they couldn't pay and no insurance to rebuild. Investors were left with loans that would not be paid and nothing to protect the home owner against loss meaning, the investor had non-existent assets. Confidence between banks and investors broke down and the secondary market collapsed.
Fast forward to 2020 and banks have spent 12 years supposedly, rebuilding their assets. In America banks have been allowed to fail. During the Great Recession 2008-2014 US banking failures were:
2008 – 25 banks
2009 – 140 banks
2010 – 157 banks
In 2020 to date, 2 banks have failed. This was not due to the coronavirus but rather due to issues which existed before lockdown and can be tracked back to 2019 when the quarterly financial reports were issued showing banks were not financially stable. They had a measuring ratio of 1050% when any bank at 100% is considered at risk.
Currently investors are still buying secondary market investments in an economy, which is based on debt growth. The lockdown has caused the economy debt momentum to stall. (refer blog on quantitative easing and blog on all money is loaned into existence) What the coronavirus lockdown highlighted was the lack of reserves held by investors and banks. This resulted in the US Feb pumping trillions of liquidity into them once lockdown was announced.
The lockdown highlighted that the money/debt ratio system is extremely fragile and does not have the liquidity and reserves that should have been expected.
The Future Impact on the Secondary Market
Many of the top investment companies, banks and general businesses in the world have little or no liquidity within their businesses. They operate a Just in Time stock system with 30 days plus invoice payment system. Many operate on 60 or 90 days. They operate on a debt system with no cash reserves for emergencies. Just look at the number of businesses which have gone into administration over the past 3 months of lockdown.
This has a flow on effect for support businesses and consumers. It also means the tax takes will be down for governments who are reliant on income to meet their obligations including benefits for those who have lost their jobs and pensions for the elderly. School, hospitals and all the services provided by governments are affected. The government are reliant on income to pay for the interest on the trillions they have pumped into keeping liquidity moving in the economy.
Just this week, the Bank of England stated they cannot raise interest rates until the level of debt goes down as it will bankrupt the country. In other words, every time a government prints money the value of the paper currency (fiat currency) devalues. The only way for debt to go down is for inflation to reduce the impact of the debt ratio. For services to be cut back and the goverments payment for benefits and pensions to be reduced.
In the past couple of weeks, central banks around the globe have issued bonds with no interest payments or negative interest payments just trying to raise funds for their economies. As their currencies lose value as the debt ratio increases.
The Coronavirus Impact
As countries one after the other went into lockdown economies crashed. First out of lockdown was China, which over recent years has pumped a great deal of money into building manufacturing links (the silk road project). Once out of lockdown China increased manufacturing providing coronavirus safety equipment to countries in desperate need. Despite this it is estimated the impact on China's economy through lockdown will see unemployment between 15%-20%. But with China you never know the real figures.
On the other side, many countries have invested into finance market systems (services) such as New York Exchange, London Exchanges, Hong Kong and Singapore Exchanges dealing with money flow services. Service industries are reliant on other industry sectors being robust and needing their services leaving these countries exposed with little or no manufacturing to support the economy.
Most financial transactions use the US dollar as the base currency with each countries own currency fluctuating against the dollar. The US set up the US Currency Swap Lines to provide some stability for currencies. 15 countries signed up to the agreement. Canada, UK, EU, Japan, Switzerland, Australia, Brazil, Denmark, Korea, Mexico, New Zealand, Norway, Singapore, Sweden and Indonesia. Those countries were able to borrow credit from the Swap Lines. They are known as the positive Swap Lines and countries which didn’t sign up to the facility have negative swap lines.
The impact of this is if you have a global business with a head office in a country with a positive swap line getting into difficulty, it is more likely that the governments will step in and support essential businesses by taking part ownership of the business in the form of assets for liquidity. Just this morning we have heard the UK government are looking at nationalising the railways. In a global economy where there is non-global resources available to governments who are not part of the swap line agreement business will probably fail. The nationalising of businesses (asset swap for credit lines) put the world based on freedom of trade at risk.
When investing in shares it is going to become far more important to research thoroughly all the markets a business operates in and the possible impact on that business as to whether or not it is likely to remain on the share market, is it possible, part or some of it will be nationalised; is it in a +Swap line country or -Swap line country. What is the stability of the currency and current government policy.
Two key areas most likely to be affect are country infra-structure stocks and mining stocks. With gold and silver likely to be the default currency in the event of fiat currency failure governments are more likely to step in and nationalise the industry for their own benefit as was seen with Venezuela who taking control of gold mines and oil fields. Venezuela even demanded all gold held overseas in banks had to be returned to the Venezuelan Government.
One piece of advice is, don’t invest if you don’t understand the market, the country, the company and the processes.
What do you do?
Education and information are going to be key to navigating your way through the minefield of global economies. Thorough research of an investment along with really understanding the process of the industry will be a necessity not a luxury.
Management of the risk associated with any investment will be essential and will have to be built into the cost of the investment.
Plan for your own financial needs rather than depending on a government pension will be absolutely essential.
I have a variety of coaching programs in Business Investing, Property Investing, Shares & Bonds and Bullion Investing. These are educational programs which can be customised to meet your current educational knowledge, experience and finances. Coaching be in a group environment or 1-2-1 basic. Contact me on email@example.com and see how my team and I can help you.
Robert Kiyosaki is a visionary genius who understands the impact government policies and decisions have on future markets. It is worth taking note of what he says and being prudent. But don’t be alarmist as there are always things which might change the economic destiny. There are always opportunities in turbulent times. Robert Kiyosaki wrote the book Prophecy in 2003 where he predicted a major economic crash in 2016. As Robert will say – his theories were right and still are, he just didn’t count on Donald Trump becoming President and putting in strategies to prevent the crash.
One thing is certain, we are in turbulent times where education and knowledge will be key to navigating the economic minefield. You owe it to yourself to become as fluent in the markets as possible so you can take advantage of the opportunities that will arise.
Market Report 22nd June 2020
A round up of the markets since lockdown in the 4 investment categories of Business, Property, Shares and Bullion
Business – With many countries now able to open shops attracting shoppers back onto the streets is proving difficult. The fear culture that kept many home during the lockdown is the same fear preventing many from going back into the shopping centres and high street. A string of well known brands went into administration during the lockdown which means many favourites and reasons to hit the high street no longer exist. Shop capacity is having an impact with many shops operating within 50% - 75% of normal capacity for shoppers. Online shopping is in a boom time and likely to continue for some time.
Whenever there are difficult times there tends to be a growth in network marketing businesses and cottage industries. This crisis has been no different with both these industries growing over the past few weeks.
Property – will traditionally drop during difficult markets but the past week has seen property rise in many countries. UK has been stunned at the demand for property as Estate Agents and Rental Agencies are permitted to open. The low interest rate at 0.1% in UK offers good opportunities to get into the property market.
In Spain, property prices have varied depending on where the virus was most active. In regions such as Madrid, heavily affected property prices have dropped on average 1.8% but in regions such as Murcia, one of the least affected by the virus property prices have increase with properties rising in value between 6% - 13%
Shares – remain very volatile with some of the gains initially recovered, following lockdown, starting to ease back again as fears of a second wave affect confidence. The impact on shopping has affected the prices of retail shops. The market is favourable for Value Investors with many undervalued companies. Dividend investors have had dividends affected with some companies delaying payout of completely missing payments. The current markets are still more favourable to Traders rather than Investors.
Bullion – The past 3 months of lockdown has seen money flow into gold and silver. Gold has risen 9.73% and silver is up 33.33%. Silver tends to lag behind gold in activity but traditionally will outperform Gold in value. The current gold:silver ratio is 97.78 down from 120.48 a 3 months ago. This indicates silver is still the commodity to purchase.
Bonds - Central Banks have been issuing bonds at zero/negative interest rates to raise funds for the huge expenditure during lockdown
Quantitative Easing - still remains in force with many central banks as they pump liquidity into banks who will hopefully pass some of the funding on to support businesses.
Oil – prices are recovering following the shock drop and negative prices at the start of the lockdown. Iran shut down fields which helped to increase the price. Stock piling ready for the winter months has also helped increase the price. Prices still remain volatile offering good trading opportunities.
Interest Rates – Central Banks are indicating they want their buying programs to stop and reduce their asset holdings before increasing interest rates. However, the level of support through quantitative easing is still needed so it is likely to be a while before interest rates are increased providing inflation remains low.
Dividend and Compounding Investing
There are many different types of strategies you can use in share investing.
Often the first image that comes to mind is sitting in front of a computer screen and watching numbers ticking over at a rapid pace hearing buy, sell, sell, buy. That tends to be trading and is a strategy best left until you are more skilled with shares and investing.
Some will think of mega share investor, Warren Buffett, whose strategy is based around value investing. Analysing companies and looking for ones that are undervalued, have monopolies and exceptional prospects.
But, for the new to shares investor the simplest and less risky form of investing is buying dividend shares and using the compounding effect to accelerate returns and income.
What is dividend investing?
Dividends are the interest received from an company in exchange for holding their shares. Companies will pay dividends once a year, twice a year, 3 times a year, 4 times a year or 12 times a year. There are some companies who pay no dividend at all. For dividend investing, look at companies that pay either 4 times a year or 12 times a year.
When companies pay dividends more frequently you can accelerate the yield return through reinvesting the dividends. For example, one of my favourite shares has a fairly stable yield average around 7.17%. It pays dividends on a monthly basis. By reinvesting the dividend every month, this allows more shares to be bought each month and subsequently more dividends to be paid. Calculating the yield over 12 months produces a return of 8.12%.
This strategy works particularly well when the dividend is paid on a monthly basis.
Quarterly dividend paying shares also offer higher returns but not as spectacular as monthly dividends. With the above example the yield would be 7.4% based on the return for this particular share if paid quarterly rather than monthly.
Dividend investing is a simple strategy which with patience can provide exceptional returns.
Imagine a hockey stick. It is flat on the ground level, curves gently, then goes almost straight up to the handle. The hockey stick is a perfect example of what a compounding effect chart would look like.
When investing in shares the return is low to start with. Then returns increase and create the gentle curve. Finally, returns grow exponentially creating the handle effect.
Albert Einstein described compounding interest as the 8th wonder of the world. He said “he who understands it, earns it. He who doesn’t, pays it” sadly very few have the patience to allow the compounding effect to grow to the exponential returns possible and earn financial wealth.
Combining dividend investing with the compounding effect and you build a powerful combination of strategies which can produce incredible results in the shortest possible time.
10 Minute Shares – Simple Strategies to Make Money on the Share Market – Karen Newton
This book review is about my own book which is available on amazon at https://www.amazon.co.uk/10-Minute-Shares-Simple-Strategies-ebook/dp/B07V38BYJM is a beginners guide to investing in the share market with some very simple strategies to get you going.
Einstein described compounding interest as the 8th wonder of the world and very few people understand how powerful it can be. In 10 Minute Shares it forms a basis for regular investing which when dividends are reinvested makes it possible to generate incredible wealth within a 10 – 15 year time span.
2 charts are included in the book which show an initial investment of £2000 followed by £100 monthly investments with the compounding effect taking 15 years to become a millionaire. In the second chart an initial investment of £3000 is used again investing £100 per month. This time the investment gets to £1 million only 6 months sooner.
Starting with an investment of just £100 per month and every month thereafter will take just 8 months longer than the first chart to become a millionaire.
The benefit of the compounding effect shows that it is consistent investing which produces the best results.
With dividend investing the book show which are the best investment strategies to get the best returns. Monthly dividend shares using auto invest, can produce a much higher return than the traditional one or twice a year dividend.
Using a monthly dividend share with a yield of 7.7%, reinvesting the dividend over 12 months the return is 8.12%. The effect of reinvesting the dividend each month and earning dividends on dividends produces the higher return and shows how the combination of dividend investing with the compounding effect and explode results.
PCA is a beginner’s strategy producing capital growth and stands for Price Cost Averaging. Using PCA involves buying shares at the same time each month regardless of the price. Throughout a period of 12-18 months it produces a steady return of 5% capital growth.
Compounding the dividend yield of 8% and capital growth of 5% the investor has a growth of 13% per year.
The use of charts has long been a strategy for analysing shares and the book shows different types of charts which could be used include Line Charts; Candlestick Charts; Area Charts and OHLC Charts and when to use them.
Part of charting are the overlay tools which provide much more information on which to base a decision. The tools covered in the book are the use of Moving Averages and RSI (Resistance and Support Indicator)
The 10 Minute Shares book offers the absolute beginner a way to start investing in shares with some simple strategies which over time using the compounding effect together with dividend investing will provide the investor with a stable investment strategy to build wealth.
If you would like to learn more about 10 Minutes Shares - Simple Strategies to Make Money on the Share Market. The link will take you to YouTube where you can hear more about 10 Minute Shares from the author.
Turning Dreams into Reality
“Dreams are nothing more than wishes and a wish is just a dream you wish to come true.” Sang David Cassidy. Sadly, too many people give up on their dreams when they could make them a reality simply because they don’t know where to start.
Focus on It
Visualisation is the first step to making a dream a reality. By visualising your dream, you are getting your brain to think about the reality of the dream coming true. Your subconscious mind will then set to work to finding a way to make the dream come true. Visualisation is simply creating the vision of the dream becoming a reality. In your mind you think it, see it, feel it as if it is happening right now.
One of the best ways I found to create the atmosphere for visualisation is to associate a piece of music to your vision. I have different songs for different visions. Most songs last for 3-5 minutes put the song on and build your vision in your mind. Walk yourself through the vision. Then each time the song plays your mind will automatically associate with your vision.
You only need to spend 3-5 minutes a day, while the song plays, building your dream, then you will start to see the opportunities around you.
Putting a plan together scares a lot of people. There are fears that it is unrealistic, or I’m being stupid for wanting this. When the opposite is true. If you have the dream then it is your right to achieve anything you deserve.
The first step is to write down what the end result will look like. Work backwards until you have come up with a stepping stone to get from where you are to where you want to be. For example, if you want to learn to drive a car the end result is you have a driver’s license. Working backward you have to pass a test. Before that you will need driving lessons but you can’t start your lessons until you have a learner’s license. To get a learner’s license you need to apply for it. What is the first step to take to apply for your license?
Now, you have just created a plan.
You’ve just created a plan and for it to become a reality you need to take action. Only when you have something committed to paper and take regular action will the dream become a reality.
Think of a cake recipe. The recipe is the plan to bake a cake. However, cakes don’t bake themselves, you have to follow the plan and take action to bake it. Your dreams are exactly the same. Once you have a plan, commit to it by taking an action. Write it in your diary and make time for yourself to take the action step. Make sure you do something everyday or every week until you achieve it.
Building Wealth and Dream Lifestyle.
So, now you are wondering what dreams have to do with Investing. I help clients build the wealth they need to create their dream lifestyles. The first step is to know what sort of lifestyle they want and how much it will cost. Each meeting we review what action they have taken towards achieving their dreams. Anyone can make money once they know how. It’s a simple process. The problem is not how to make the money but how to maintain the momentum of making money as the process can be very boring. To keep you motivated you need to have a dream. A dream that creates enough passion in you that you will focus on it, plan it and take action until you achieve it. Then move onto the next dream and the next until you no long recognise the old life and instead you have your dream lifesyle.
Your lifestyle is the reward for doing the same dull boring process over and over so you can make your dreams come true.
As David Cassidy sang “Dreams are nothing more than wishes and a wish is just a dream you wish to come true” unless you focus on it, plan it and take action until you achieve it.
What is Quantitative Easing and How it Affects the Economy
Imagine you woke up this morning to find £1 billion in your bank account. Wouldn’t that be great? With a wage of £7.25 per hour it would only take you 66,313 years to make a billion. The Bank of England, or any reserve bank, can create that sum of money almost instantly.
In a previous blog “all money is loaned into existence” I discussed how reserve banks will create the money through quantitative easing. By creating money from nothing, buying bonds or other assets from banks and creating liquidity of cash. Exactly, what happened in 2008 during the credit crunch to keep the flow of money circulating and trust within the banks.
Throughout the Great Recession 2008-2014 the reserve banks were creating a lot of money each day through quantitative easing. In America, in 2013 the Federal Reserve Bank was creating $85 billion a month. This had the effect of protecting bonds, keeping value in the share market and keeping interest rate low. In other words, what you think of as a free market was totally manipulated by Reserve Banks.
How money is loaned into existence
When governments want money all they do is create bonds, release them on the open bond market, banks buy the bonds, receive regular interest on them and hold them as an asset until such time the bond expires or they can on sell it.
The government needs more money, the banks don’t have enough to buy more bonds so the reserve bank steps in.
The reserve bank will create money buying bonds from the banks who in turn lend the money to the consumer through overdrafts, loans and credit cards. That the simple analogy.
In reality what happens is the Reserve Bank will announce it is looking to buy bonds to X value for Y interest rates. The Banks will go to the Bond markets buying as many bonds as it can for a lower interest rate than the Reserve Bank is offering. The banks then sell the bonds to the reserve bank at the interest rate the reserve bank offered to buy. The banks who are the middle men will make money on the transaction of selling bonds to the Reserve Bank and again in lending it to the Consumer.
The process of the Reserve Bank purchasing bonds or other assets from the banks is known as quantitative easing and is how the money flows into the economy.
What happens when tighter money controls are needed?
When there is too much money in the market the Reserve Bank will tell the Banks they need to buy back the bonds the Reserve Bank are holding as security. Sounds simple? In reality it can cause major problems.
When the Banks sell the bonds to the Reserve Bank there is a value and an income generated from the bonds. In simple economics – supply and demand – there are limited bonds on the market meaning often higher interest rates are payable on the bonds.
When the Reserve Bank decides to sell the bonds back to the Banks, there is a flood of bonds on the market. The government are still creating bonds to generate the income it needs to operate the country and the Reserve Bank are selling the bonds it holds as securities. In this case there is an over supply of bonds on the market and the interest rates reduce. Banks will lose money on the transactions. This in turn affects stock markets; bonds and house prices.
Why Quantitative Easy is Dangerous to the Economy?
In March 2020, many countries went into lockdown over the coronavirus. Immediately, businesses were closed and productivity ceased. The GDP (Gross Domestic Profit) for countries came tumbling down. Share Markets crashed and Bond Markets crashed and many banks were on the brink of collapse.
Deemed an exceptional circumstance Reserve Banks started quantitative easing and printing billions of fiat currency. Not just one country, but almost every country started printing money. The money was supporting businesses who faced permanent closure; it was supporting employees and it was needed to bring in the medical supplies to support the hospitals and the sick.
The world has never seen so much money being printed. However, somewhere along the line, the creation of money will need to be reigned. When that happens, there is be a surplus of bonds and securities on the market forcing the prices downwards. The share market and housing markets will suffer. Businesses which have been closed will not open or will be unable to pay back the loans they borrowed. Unemployment will rise and the world will see the biggest economic collapse in history of the world will have been triggered by excessive quantitative easing.
Loss of Faith
Money, the notes and coins you use every day or the digital transfers you do within your bank accounts is built on faith. It is a faith that the note you use to pay for your groceries will buy the quantity of food you expect.
Quantitative Easing is an experiment to control a financial market. It provides support in difficult times but it can cause the opposite when trying to reign in the amount of cash in circulation. A loss of faith in money which in turn has repercussions of collapsing markets and hyperinflation which is why the long term effects of quantitative easing are dangerous to the global economy.
What are Investment Clubs?
They are simply a group of people who come together with the aim of investing or trading. The club can be social based; educational based or both and have a specific reason to invest. Each month the members of the group pay a set amount into the club and each month a decision is taken by the members about what they should invest in.
A group of doctors decided to set up a Share investment Club. There were initially 8 members which later became 10 members. The club started in 1994. The doctors all had interests in different areas so each person was responsible for researching shares in the designated area and presenting their findings to the group each month. Collectively the group started with members contributing a small amount equivalent of around £100 per month. Today the investment club has funds equivalent to £725,000. For the past 4 years nobody has contributed to the club they just reinvest the funds. The calculation on this is 10 people have invested £100 each per month which equals £12,000 per year multiplied by 22 years equals £264,000 total contribution and £461,000 profit.
Investment Clubs operate throughout the world and can be used for specific investment strategies such as Trading; Share Investing; Property Investing and Bullion Investing.
How Investment Clubs Work
Clubs are set up to run as a separate entity through companies; trusts or partnerships. They have their own bank accounts and everyone within the club is responsible for the running of the club, the research and the decision on the investment. For example, a club would have a treasurer; a secretary to record the minutes of the meeting; a chairperson who controls the meetings and has the final say if there is a deadlock in the voting; a designated investor who will place the investments and you would need back ups to the roles. The entity needs a set of rules to run by with decisions on how to exit a club if a member wants to leave; the timeframe you want the club to run; adding new members etc.
Benefits of Investment Clubs
· Pooled resources – with everyone contributing to the club the research is spread amongst members which allows more research to be done than one individual could
· Pooled Money – with larger sums of money to invest the trading costs are reduced allowing higher returns than if you were investing as an individual. You can access investments that may be more expensive but offering greater returns
· Risk Reduction – with majority rules the decision making carries less risk as you are all contributing to a decision rather than making it individually
· Tax – a SAPP can be set up with a company structure to reduce tax and provide future pensions (depending on club rules)
· Trust – clubs can be set up with people you already know and trust
· Social – clubs can be social so you get out and meet people
Investment Club Opportunities
There are currently some opportunities to join investment clubs through the £2.73 Club they are:
1. Trading Club – for clients interested in Trading on overseas markets. This club is educational and practical
2. Business Investment Club – this club has opportunities to buy into other businesses providing long term residual investment opportunities
3. Bullion Investment Club – for club is for investing in Gold & Silver Bullion through offshore, tax free, income generating opportunities
If you are interested in joining an Investment Club contact me
All Money is Loaned into Existence
While you and I work to generate the cash we need to cover all our everyday bills, have you ever thought about where the money comes from?
It is all loaned into existence.
My specialist area is money flow. What that means is I look at where money is moved from an investment and where it is being reinvested. Following the flow of money makes it easier for me to understand where the next best investment is likely to be. For example, if people have money in shares and the share price is dropping where are they reinvesting the money. As part of the flow of money I am watching the markets to see government debts and how much money is being loaned into existence.
Why is Money Flow Important?
I am what is known as a Contrarian Investor. A contrarian investor invests opposite to what the markets are doing. This allows me to buy investments at the lower range and sell at the higher range. If everyone is selling shares, the share price is dropping. A contrarian investor is buying. It’s like having a sale on shares as the price is low.
Once I know where the money is flowing to, I can then start selling that particular asset. With high demand for the asset, the price will go up and I can sell for a profit. This whole cycle means I am selling high, buying low and generating income and capital growth at the same time.
The only way I can use this strategy is to understand the money markets, investments and money flow and the use of asset and liability creation. Government intervention through Bonds and Quantitative Easing have an impact not only on the value of the currency and the value of the investment but the way the money flows.
What is Asset and Liability Creation?
Imagine you have £1000 in cash. You deposit that money into a bank. You have an Asset of £1000 and the bank has a Liability of £1000. The liability for the bank is that at any time you may demand the money back. Now they need to have an asset on their books so they create loans using your £1000 deposit. This is called Fractional Reserve Banking
How does Fractional Reserve Banking Work?
Each time a deposit comes into a bank, they are allowed to lend up to 90% of the deposit. In the table below I have assumed the loan is used to pay someone and the deposit goes back into the same bank under a new customer. If this table were completed you would see the original £1000 deposit has generated lending of £10,000 in effect, the bank has created £9000 of new money. (£10,000 of loans minus £1000 original deposit)
Running Total of Money Created
The bank now has an asset on its books of £10,000 in Assets from the loans simply created from an initial deposit of £1000. For me, following money flow, I know that every time money is deposited into the bank if will flow out as lending in one or more formats such as loans, overdrafts and credit cards.
How the Government Raises Money.
All governments need money to pay for services such as hospitals, schools, benefits etc. While they collect taxes there is usually a shortfall. To cover this shortfall, they issue Treasury Bonds. The bonds have a face value and pay interest. They then offer the bonds for sale. Some are bought by Banks and some by Investors. Now the government has raised the cash it needs to pay for the country’s services. The government has created a loan that it has to pay with interest and offered the loan to whoever will buy it. They have loaned money into existence.
What is Quantitative Lending?
In 2008, Quantitative Easing became a buzz word. Central Banks/Reserve Banks/The Fed were pumping money into their countries to keep the banks afloat. Now as we deal with the Coronavirus crisis we again have the situation of quantitative easing being pumped into economies.
Mervyn King, Governor of the Bank of England and Hank Paulson, Secretary of the Treasury, USA both reported that the situation in 2008 was so bad that the worldwide banking system was just days away from total collapse. Without quantitative easing, we would have no banking system as we know it today. Currencies worldwide would collapse and all deposits that the general public had with banks would have disappeared with the collapse.
Quantitative Easing is generating money as a loan to banks so they have deposits on their books and can then lend the money out. It allows money to flow again.
All Money is Loaned into Existence?
I started this blog by saying all money is loaned into existence. Any money we handle on a day to day basis, from the very first pound, dollar, euro issued by a government was generated as a loan.
The whole world is based on a debt economy that requires loans to be continually pumped into the market to generate the deposits, the savings and investments that you and I take for granted. So, every time you spend money, invest money or deposit it into the bank remember all money is a debt that someone somewhere has loaned into existence and has to be paid for.
What’s your Fire in the Belly? Asks Pete Lonton.
Pete bought his first property at the age of 20, out of necessity for somewhere to live while working on a contract in the UK. He continued to grow his portfolio and within a few years had 16 properties. Today, property is a key part of his investment strategy. Pete and I both started property investing around the same time so we chatted about what the markets were like, negotiating deals and the mortgage market.
Last year Pete launched the Progressive Property Network (PPN) in Northern Ireland providing a platform and meeting environment for anyone interested in property whether as an existing owner or as someone keen to get into property.
As a business owner Pete’s new project is Fire in the Belly. As Pete says “why do some people get out of bed and achieve amazing success and why do other people get out of bed and watch tv? He talks to success people about what motivates them, keeps them going in tough times and what is their Fire in the Belly,
Join Pete and I for a chat about property investing, business and Fire in the Belly.