General Investment Information
Market Report 14th September 2020
In the news this week, Japan’s new prime minister, Sheltland Islands seek devolution from Scotland; Copper at all time high, British Economy rebounds by 6.6%
It has been a fascinating and busy week with major implications in the Markets so plenty to roundup this week.
Japan’s Prime Minister Abe, resigned a few weeks ago due to ill health. The elections have taken place in Japan and his successor is soon to be Prime Minister Suga. It is widely thought that he will continue the reforms and maintain the policies of Abe who has been very popular with both the Japanese citizens and global markets. Warren Buffetts US$6 billion investment into the Japanese Market offers support for the policies being implements and the future of the Japanese Market.
Good news for UK’s Brexit, is the trade agreement made with Japan which will be worth around £15 billion to both economies.
The UK economy bounced back with a 6.6% growth but how long that will remain is dubious as it was boosted by incentives from the government to spend and people coming out of lockdown.
The Shetland Islands approved a motion to seek independence from Scotland. The Shetlands are seeking to remain within the UK umbrella but under the same governance rules as apply to The Isle of Man, Guernsey and Jersey. Orkney Islands have stated they are looking at a similar proposal as the don’t want to be part of an Independent Scotland. This would have major implications for Scotland who would be reliant on the oil both Isles generate to balance the financial books.
China and the EU are holding talks for a possible trade agreement however, there are a few stumbling blocks particularly regarding access to both countries. China would have access to most businesses within the EU block however, there would only be limited access for EU companies to the Chinese Markets.
Bank mergers are also in the news with Swiss banks UBS and Credit Suisse exploring a possible merger to become one of the Europe’s largest banks. In Spain Caixa Banks SA and Bankia SA are also in possible merger discussions to become the largest bank in Spain.
The Share Markets are in a temporary holding pattern waiting for the Central Bank monetary policy meetings taking place this week. Meetings being held are on Wednesday the US Fed and Central Bank of Brazil; Thursday see meetings for Bank of Japan; Bank of England; South African Reserve Bank; Bank Indonesia and CBC Taiwan then on Friday Central Bank of Russia. The European Central Bank held its meetings last week and decided to keep interest rates on hold and the quantitative easing program unchanged.
Gold – the price of gold moved upwards slightly with a 0.89% growth for the week with gold now at US$1946.26
Silver – the price of silver moved upwards very slightly with 0.06% growth for the week. Silver now sits at US$26.86
Gold:Silver ratio – remains in the low 70’s at 72.40 indicating there is still good growth potential if buying silver.
Copper – continues its bull run mainly on supply fears with the world’s largest mines in South America being affected by lockdowns. China’s quick recovery and demand for copper has helped fuel the spike in prices. According to Metal Bulletin, some 1.15 million tons of production was lost to the pandemic this year with a further 672,000 tones lost due to other disruptions.
Oil – Prices continue their downward trend with WTI Crude down to 36.97 a barrel and Brent Crude down to 39.50 a barrel this is due to an increase in inventories with the American Petroleum Institue reporting an increase in inventory to 2.970 million barrels higher than analysts had predicted.
Alternative Energy – we are used to seeing many so-called alternative sources which turn out to be hair brained schemes however one idea which keeps coming back and gaining more popularity is making windows in homes solar windows. Scientists now view the windows as a chance to take passive parts of a building and transform them into active power generators with engineers having now developed semi-transparent solar cell panes.
Why You Need a Backup Plan if you are in the Forex Market
Why do I need a backup plan I hear you say? It’s a big market traded every day. What traders fail to realise is how quickly the FX Market could disappear, meaning traders would instantly lose everything tied up in the market. Never before, in its short history, has the FX Market been so vulnerable. The future of the FX Market is balanced on a knife edge. To explain what I mean we need to look at the history of FX trading.
In previous blogs, I have written about the gold standard which ceased in the 1930’s and was replaced after WW2 by the Bretton Agreement. The Bretton Agreement pegged the value of the US Dollar against the value of Gold and all the other currencies were pegged against the US Dollar. This stabilised worldwide currencies and created a benchmark which allowed global trade.
In the 1970’s US President Nixon, due to economic problems in the US, the run on gold because of a devaluing dollar, took the US Dollar off the Gold Standard and the Forex market that we know today, was created. The US$70 million per day trading market, of the 1980’s rapidly increased to over US$1.5 trillion only 20 years later and continues to grow.
Fast forward to 2020, where world economies are in a mess, some countries have astronomical inflation such as Argentina whose inflation rate is 40.60% for the month of July. Argentina has an average inflation rate of 194.97% although this is way down on the 20,000% (twenty thousand percent) in the 1990s. While that is an extreme, many countries are recording high inflation with fears of more countries experiencing hyperinflation.
Debt levels have increased exponentially, with the introduction of quantitative easing and countries only too willing to pump more liquidity into the markets to stop banks and other businesses from failing. During the March 2020 global lockdown, the US printed Trillions of dollars to keep the economy afloat. The UK printed £656 billion during the March lockdown. Levels of debt, never before seen, which caused GDP of many countries exceed 100%. The US, as I write this is on 130% debt to GDP ratio and expected to reach 141% by the end of September. The UK was on 100% GDP in their last quarterly figures.
During the 2008-2014 Great Recession, the experiment in austerity measures failed, stalling many economies from recovering quicker as governments fought to keep hyperinflation out of the recovering economies. Major lessons have been learnt and since 2014 there has been a move to bring back a gold standard. This has gained momentum and favour with many countries. There are two strategies now being considered.
1. The Gold Standard – bringing countries back onto a gold standard would need to see the price of gold go up to help the world’s economies reduce debt to more favourable and manageable levels. This is gaining the backing of many global economies including Europe.
2. SDR Basket – peg currencies against the SDR Basket instead of the US Dollar. The SDR Basket will in turn be pegged against Gold. The SDR Basket is a digital currency used by the IMF. Pegging currencies against the SDR Basket would remove the demands from China for the Yuan to be used as the international currency in lieu of the US Dollar. With China’s track record of manipulating the price of the Yuan to suit its needs very few want to see the Yuan used as an international benchmark currency. The SDR Basket is gaining popularity as the world’s economies contribute to the SDR for example the US dollar contribution is 41.73%; Europe is 30.93%; China 10.92%; Japanese Yen 8.33% and UK Stirling 8.09%.
So, what does this have to do with the Forex Market?
As I mentioned at the start of this blog, the Forex Market only came into being because currencies were removed from the Gold Standard. If a Gold Standard is reintroduced the Forex Market will cease to exist instantly.
How likely is this to happen?
Very likely, as President Trump and his financial advisor Judy Shelton are in favour of it and have been pushing for the introduction since January 2019. Europe with the euro as one of the largest currencies in the world, a large contributor to the SDR Basket are heavily pushing for this to be instigated quickly. It has gained support from the IMF (International Monetary Fund) who are key influencers in the world markets. As more countries look at ways to bring their increasing, out of control economies back into some resemblance of order the new Gold Standard is gaining more popularity.
World economies are desperate to find a way around the heavy debt/GDP ratio and bring currencies back onto a gold standard either directly or through the SDR would help them.
Gold investors are supporting the move as there would need to be a major increase in the value of Gold to rebalance world economies which is beneficial for major institutional investors who in turn are key to help support government fiscal policies.
Banks have been building their gold reserves since April 2019 when Gold was deemed zero risk by the Basel III agreement. Prior to the agreement gold had a risk level which prevented banks from holding more than 30% of their assets in the commodity. By moving Gold to zero risk the foundation was laid to support banks, currencies and a move back to a Gold Standard.
Where does this leave Forex Traders?
Simple, the Forex Market would cease to exist if the Gold Standard is reintroduced as there would be no trade or movement between currencies which have a set price to gold. Now is the time to have a backup plan. A plan of investing rather than gambling for despite all the strategies devised about Forex Trading, it is simply betting on the movement of one currency against the next with a 50/50 chance of being right. If currencies are pegged against a Gold Standard then there is no currency movement and there is no Forex Market.
Amateur Forex Traders need to think seriously about being in the Forex Market. They are likely to be the ones who lose the biggest as they tend to place a larger percentage of their overall wealth or lack of wealth into the hope of striking it big on Forex Markets.
Learn to invest and ensure you have solid investment reserves behind you before entering the Forex Markets as it’s very likely the perceived Goose laying the Golden Egg could shortly be killed off. Have a backup plan to not only protect any wealth you have created but to ensure it can grow without a Forex Market.
The Backup Plan
I learnt trading after I had built and created a wealth foundation. I also predominately trade Gold with the occasional stocks in volatile markets. I ensure no more than 10% of my existing liquidity is used for Trading due to the high risk of the market.
The “backup” plan has always been my Plan A, build wealth through business, property, shares, bonds and bullion. Build a solid foundation and only when there is a solid foundation use 10% of surplus cash to trade if desired.
With world economies in recession and living standards likely to get tougher, with more countries likely to adopt the new Gold Standard, if you are in the Forex Markets the backup plan is essential. Don’t wait until it is too late.
For more information about learning to invest email firstname.lastname@example.org
Market Report 7th September 2020
Catching my eye in the Financial Markets this week – Banks restrict mortgage lending; Warren Buffett spends US$6 Billion on the Japanese Share Market; UK Publicly Listed Companies start reducing dividends; Bitcoin is environmentally unfriendly and more….
The property market in the UK has seen an unprecedented boom when the Chancellor reduced Stamp Duty making it an ideal time to purchase property. Two key lenders Nationwide and Barclays announced they were reducing the loan to salary ratio downwards and “bank of Mum & Dad” deposits would no longer be accepted meaning anyone buying a property will have to ensure they have much larger deposits saved. This change applies to existing applications as well as new applications (for more information about the investment training courses we run email email@example.com)
Some FTSE100 Companies and some AIM listed companies have started to reduce dividend payouts in an attempt to improve cashflow within their businesses and help build a cash pool to deal with the fallout of the recession. It is worth checking the investments you have and ensure you are still getting the dividends you require for your investment strategies.
Warren Buffett has invested US6 Billion in the Japanese Share Market. As a value investor meaning he looks for undervalued investments, the move is likely to see a boost to the Japanese Share Market. It will also be interesting to watch the currency markets for the Japanese Yen. The Yen has been considered a safe haven currency but with Buffett’s Investments likely to bring more investing into the country the currency market could become more volatile.
NS&I have admitted that people who bought into Premium Bonds are having to wait up to 5 months in some instances, to cash in their bonds and get their money back. For clarity, I do not advocate investing in Premium Bonds but rather using the NS&I platform to invest in Income Bonds and Capital Growth Bonds which are backed by the government up to £1 million and are guaranteed. Funds, form both the Income Bond and Capital Grow Bonds are usually available within 7 days of cashing in.
Gold – The price of gold continued it the downward movement reaching US$1933 as it continues to rebalance due to the speculation in July/August. Overall is was down 1.75% for the week. However for the year the gain is 26.5% which compares favourably to the S&P500 which is up 6.3% year to date.
Silver – is also rebalancing with a downward price of US$26.88 a drop of 3.68%. However, year to date the growth for silver is 48.05%.
Gold:Silver Ratio – again rose to 72.14 indicating how undervalued the silver currency is.
Reports of a shortage of silver by Global Mints led to an increase in price when infact, the shortage was not in silver stock but rather in lack of blanks available to the mints for processing. The shortage of blanks remains as many bullion suppliers are “awaiting stock” of coins and bars for retail.
CrytoCurrencies – are in the news due to them being environmentally unfriendly. A report based solely on Bitcoin, as no data was available on other cryptocurrencies, states the electricity required for mining bitcon and providing extra security is around 0.04% of all generated electricity. To put that into perspective the electricity would run Switzerland’s power grid for 2 years.
Oil – Also continues a downward trend with WTI crude down from US$43 a barrel to US$39. Natural Gas which had been in an upward market reversed the trend and was down to US$2.53
Alternative Energy – nano-diamond battery development. Commercial diamonds have a 15% charge collection efficiency. The nano-diamond battery was able to achieve 40% charge. NDB startup company who are pioneering the nano-diamond battery state the new technology will allow a battery life for cell phones, aircraft, rockets, electric vehicles, sensor and other devices and machinery of approximately 28,000 years almost eliminating traditional battery recycling and waste.
Market Report 31st August 2020
Signs that the share markets are waking up to what is happening in the global markets with the FTSE100 down from 6818 a month ago to close on Friday at 5963.57. The Dow Jones still continues to ignore the market data and climbs up to 28653.87
There is growing concern about the increased debt levels for governments worldwide who have used quantitative easing to pump liquidity into the market to the tune of trillions and the debt/GDP ratio has exploded. There is in the short-term likely to be big tax hikes but another train of thought is the amount of gold reserves being accumulated by central banks which could be used to counter balance the debt. This is being mooted by the EU and other countries keen to get back to a gold standard. This would revalue currencies against gold to offset asset/liability ratio on balance books. Gold investors are quite excited at this prospect as gold will likely go up considerably. The third angle countries are looking at is inflation. Inflation is a tool which will make the debt level appear less but will short term affect billions of people’s buying ability. If anything we could see a combination of all three tactics used.
In the UK the Chancellor is expected to hike tax rates with a proposal that corporation tax will go up from 19% to 24% hitting an already beleaguered market and likely hindering an recovery chances in the short term. Owners of second homes are also likely to see their capital gains tax rise from 28% to 40% or 45% hitting the buy-to-let and property investment market.
Grant funds are diminishing as small and medium sized enterprises are increasingly being turned away.
Gold – lost value during the week as the volatilitiy in the market continues. Gold was down 0.79% for the week.
Silver – went against to downward trend for the week gaining 3.59% as industries start to go back to work and the silver shortage supply kicks in. Silver is a by-product of mining and with many mines shut down there are no new silver supplies for the markets.
Gold:Silver Ratio – stands at 71.64 indicating silver is still the best value investment at this stage.
Copper – Panic buying due to falling supplies globally has seen a big increase in the copper price which is up 52% since the mega drop triggered by the pandemic and is up 8% overall for 2020. With prices standing at $6605 a tonne.
Oil – the oil price collapse and deferred drilling campaigns have led to a shortage of drilling rigs for the North Sea covering UK and Norway. With drilling rigs taking a long time to get up and running companies are only considering long-term contracts of a year or more taking exploration off the market for the time being and also affecting small companies who rely on short-term contracts to operate.
Alternative Energy - Are Electric Ships Sci-Fi or a Reality? Irina Slav reports on the challenges ships are struggling with to convert to electric energy. To put this into perspective the average size of an Electric Vehicle battery is 67 kWh; An electric bus in China has a battery of 210 kWh in Denmark a ship is powered by 4300 kWh battery giving it 22 miles travelling before recharging is needed. There is an electric container ship operating between Chinese ports. Ironically, its cargo is coal. The ship hops from one port to another with the batteries being recharged while cargo is being loaded and unloaded.
The Feel-Good Factor
Have you ever bought a winning lottery ticket, watched you favourite sports team win or had a fantastic time with your friends and family? These events bring feel good emotions that make us happy and more carefree because we are enjoying ourselves. It’s the Feel-Good Factor.
In the world of investing you get the feel-good factor when you make a deal that allows you to make money at the start of the investment and again at the end of an investment. You get the feel-good factor when you’ve bought an investment that goes up and up to make you a lot of money.
In September 2007, Northern Rock Bank became the first UK bank in 150 years to see a run on a bank. A run is when there is a panic by depositors wanting to get their money back. This together with a string of economic disasters led to the Credit Crunch in February 2008 and subsequently the worst recession in history. So bad it became known at the Great Recession. Throughout this difficult time everyone became familiar with the terms Austerity or Austerity Measures. It meant everything financially was restricted. There was no government spending as governments tried to balance the books. Benefits were reduced or even scrapped in some cases. Infrastructure spending on roads, schools, energy, railways were all stopped. Wages were frozen. While some loosing of the restrictions did happen eventually, no matter what country you were in everyone spoke about austerity measures.
Fast Forward to 2020 and the Coronavirus lockdown. The lockdown in almost every country was instigated to try and reduce the spread of the virus so hospitals could cope with the massive influx of patients suffering from an illness no-one had previous experience of dealing with. The lockdowns were longer than initially thought dragging into 3 months or more before lockdown restrictions were eased and, in some areas, removed completely. The result of this was an economic disaster which has seen many countries, whose economies were balanced on a knife edge, plunged into the worst recession they have known.
Having learnt, austerity measures have a restrictive effect on growth within the economy governments introduced the feel-good factor to boost spending and increase motivation to get back to work, have holidays and show the world’s populations everything is back to normal. But is it?
As an investor, it has caused confusion within the financial markets with mini booms that will no doubt go bust leaving financially uneducated people struggling to make decisions on what to do with their money. As a professional investor trying to identify the safest investments during this period is difficult, what hope do novice investors have?
Each country came up with their own initiative about which area of the economy needed the biggest boost or would help reduce the impact or a market collapse.
The UK boosted the property market by reducing stamp duty in the UK. England benefitted from this with Wales, Scotland and Northern Ireland, devolved governments, offering less incentives. The impact a robust increase in English with increased house prices taking property investment money from the Welsh, Scottish and Irish Markets. Instead of a stable UK property market it is now fractured.
The UK Share Market is also interesting. Being paid to stay at home gave people a false sense of financial wellbeing with surplus cash in their pockets people started investing the share market to the extent that one business which had called in the administrators and seen it’s share price drop from several pounds to pennies had uneducated people piling their money into the shares thinking it was a buying opportunity instead of a dud.
Finally, the UK decided, if they can’t get workers back into business offices which would trickle spending into high streets and malls, there must be another way to do this. 50% dining vouchers to encourage eating in restaurants and getting the population mobile again. What happens when the vouchers end later this month? Are families still going to eat out?
The US have been plowing money into the Bond Market to prop it up. It is an essential market for the flow of cash in world economies but it has created a false economy where people think they can’t fail as the government will bail them out. The bailout is part of an agreed support mechanism between many countries to keep economies moving.
Instead of the one extreme we’ve seen for many years, that of austerity measures, governments have gone to the other extreme of creating a false economy of reckless spending and investing through the feel-good factor. When the feel-good factor diminishes so will the economic fallout.
There is no doubt, the feel-good factor, is overriding common sense. It is creating unsafe and unstable bubbles which will implode at any time leaving small investors out of pocket. We’ve already seen Gold go up to US$2075.76 and then rebound down to US$1865.79 before settling around US$1924. The UK property market went up 1.7% in a month. The FTSE100 which dropped from 6818 down to 4993 quickly went back up to 6500. Based on current economics this market should be down much further than it is.
Don’t let the feel-good factor lull you into a false sense of being able to make money quickly. Become an investor. Investors are people who sit back, watch the turmoil, absorb the information and wait. And wait. And wait until the right market conditions come to them to make the best, safest, profitable investments.
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Market Report 24th August 2020
A roundup of economic stories which caught my attention during the past week.
Covid-19 lockdowns and social distancing have played havoc with the US coin market to the extent they asked consumers to pay for whatever they can with coins. Due to lockdown and social distancing the US Mint are unable to produce enough currency coins and bullion coins for the markets to meet demand. A spokesman for the US Mint explains that normally there would be a certain amount of currency coins in circulation but with shops closed and services reduced customers are holding their coins and not spending them. An appeal went out for coins to be used to pay for good and services where possible or to pay with debit cards as businesses are unable to get sufficient coins to provide change when notes are used.
Cardtronics, one of the biggest ATM operators in the UK ask for the interchange fee between banks to be increased so it can increase the number of ATMs in its network. The fee was reduced from 28p to 25p reducing income for the company to provide services. As a result it has reduced the ATM network from 22,000 machines to 17,500. The company state there seems to be a push to remove cash from daily life and move people onto card transactions but that hits certain markets who are totally reliant on cash. The increase in the interchange fee would allow Cardtronics to install more ATMs and provide services to communities who are losing banking services through bank closures.
TSB Bank are trialling the closure of across counter banking services in 14 branches. The branches will stop accepting transactions from 2pm daily with the bank encouraging customers to use alternative ways to do their banking.
The Debt Bubble
In my blog, All Money is Loaned into Existence, I talk about economies being debt based and growing at an exponential rate. Latest data from Office of National Statistics (ONS) shows the UK money printing schemes to support the economy during lockdown has created debt levels in the trillions of pounds and debt is now at 100% of GDP. Other economies have followed suite. The question that remains now is how to get debt back to an acceptable level. Higher taxes and inflation appear to be the two key ways to make the debt appear more controlled. Higher taxes will help reduce the amount in money in circulation and inflation will make the debt appear smaller. Negative Interest rates are already being used as a tool to bring in extra cash.
graph supplied by ONS
Gold – continues its downward trend to a more realistic price level for the current economic situation as the “Feel Good Factor” (see blog Thursday 27th August) impacts the false economy. Gold is at US$1934 offering good investment opportunities before it starts the proper climb in price.
Silver – as always follows suite closing down at US$26.30 again offering good investment opportunities
Gold:Silver Ratio – is moving upwards again from a low of 70 to 71.97. This indicates silver is the commodity to buy at present offering the best value for money and when markets do move upwards again there is still plenty of leverage within the ratios
Although, Gold & Silver markets are correcting at the present the best way to be active in these markets is to have a plan to purchase the commodities on a regular basis. With the price being volatile it is unwise to invest large sums at present and a PCA strategy over the longer term will be cost effective and offer the best opportunities for future growth.
Oil – Warren Buffett sells his US$10 billion holding in Occidental Petroleum. He has bought the common stock to help fund the company’s expansion but the timing was unfortunate with the virus lockdown and crash in oil prices making it unviable for the company to drill for oil.
Carbon Footprint – sees a growing number of oil and gas companies looking at ways to measure and reduce their carbon footprint. This has resulted in a growing number of technology companies launching carbon emissions tracking and accounting software according to Reuters.
Market Report 17th August 2020
Business as usual in the markets even though Britain officially goes into recession.
What a crazy week in the markets which failed to react to Britain going into recession. Not only did the normal corrections not happen but there was a coordinated effect between Central Banks to provide quantitative easing into the economies to try and keep businesses moving.
Several Venture Capital groups held their hands out for support with governments looking at how to keep them going. This was first done in March 2020 during lockdown. In the US economy in March they asked for trillions of US dollars. To now see the UK following suit is alarming as it sends out the message if you are a big organisation heavily in debt the government will support you rather than making sure the business models they operate, work properly.
The impact on the share market has seen prices bounce back rather than reflect the true economic position. This has caused the IMF to issue warnings about irresponsible reactions to the economic situation.
Despite this, it seems governments are taking the stance that spend, spend, spend is better that austerity measures. Though at high street chains continue to call in the receivers, it makes you wonder who is benefitting from the spend mentality when John Lewis announced its flag ship store will not reopen and Debenhams called in the administrators. 250,000 jobs were lost in the last quarter so who is the quantitative easing benefitting.
The Travel Industry is one of the hardest hit and it was hoping for a summer come back to get it through the winter and ready for a better 2021. However, this week Virgin Atlantic called in the receivers. The 2nd Virgin Airline to go under as the one in Australia failed during lockdown. More locally for me, Jet2 stopped all flights into Spain and Ryanair, who traditionally, go onto a winter timetable of 3 flights a week from 1st October, announced they would not operate a winter timetable this year and all flights would be cancelled until March 2021.
Banks still continue to have problems and in America, Warren Buffett’s Berkshire Hathaway sold is entire holdings in Goldman Sachs and part holdings in Wells Fargo and JP Morgan.
Gold – fell back from the hefty highs of last week as speculators started to move out of the market. Warren Buffett having raised funds from selling bank shares bought US563 million dollars worth of shares in a gold mining company Barrick Gold. In response to his purchases Ray Dalio’s Bridgewater Fund also purchased a similar amount of gold. As these types of investors move into the bullion market, we are likely to see similar investors move in. This will provide a more stable foundation for the future growth of the gold and silver markets.
Gold price retreated to US$1945. Expect the price to go up and down like a yoyo over future months while governments try different tactics to pull the economies out of recession.
Silver – also retreated in spot price down to US$26 as it follows the trend of gold movement.
However the gold:silver ratio was back up at 74 having dropped to 70 the week before. Silver still provides a good investment opportunity.
Oil – Despite US sanctions, Venezuela upped production hitting an average 325,000 barrels daily average. The increase comes from diesel-for-crude swaps which are not covered by US sanctions. The increase will help ease the fuel shortages in Venezuela as well as providing much needed boost to the economy.
ESG Funds – Environmental, Social and Governance (ESG) Funds are getting a major boost from investors such as Blackrock and Jeff Bezos. With these types of funds proving popular and starting to be regarded as a safe haven investment there is a shortage of products available for investing large sums of money. However, Wall Street are now looking at boosting availability through the ESG portfolio hedge fund.
Don’t Fear Recession. Fear lack of Financial Education.
As countries start tumbling one after the other into recession, fear takes hold and most people panic. What happens if I lose my job? Will I be able to pay my mortgage or rent? How do I pay household bills? There are, a myriad of fears that race through people’s minds. They are genuine fears, yet, the one thing they should fear is not even considered. The fear of not having enough Financial Education to be able to make the right choices for the economic climate.
Opportunities for Investors
When I speak about the difference between Investors and Traders, I cover how patient an investor has to be. They have to patiently wait for the magic of their investments to start producing results. I liken it to watching paint dry. It is painfully slow when you first start investing and while you wait for your investments to get to the level where they can support you.
The other part of patiently waiting, is waiting for the investment opportunities that abound at certain times in certain economic times. As a bullion investor, I have been patiently waiting for 20+ years for the gold and silver to reach a specific level for investments. I am still waiting and expect to be waiting another 4-5 years or more to get the results I expect from bullion investments. I know the market will get to where I expect it to be so I can take advantage of the investment I have made in bullion. I know because I spent years learning about Bullion Financial Education.
Within investment categories – I teach 4 categories – Business, Property, Paper and Cash – there are always ups and downs in each category. Recessions are exactly the same, some investments within each category will go up and some investments will go down. Financial Education will teach you what to look for and how to position yourself to take advantage of the situation. For instance, in a previous blog, I spoke about how in business, some traditional businesses will struggle in a recession, but how there are businesses which will thrive in a recession. Owning one or two businesses will allow you to use the economic markets to your best advantage to grow your wealth and support or even improve your current lifestyle. These do not need to be big businesses they can be side hustles that can produce regular income for a small amount of regular working hours per week. Often an hour a day will have significant benefits.
There are businesses which thrive in a recession such as franchises and network marketing businesses. These businesses attract dedicated people who have lost jobs and are looking for some way to make income. They are dedicated and have a sense of urgency to generate an income. Many of these people will make a success of a business because they know the feeling of being made redundant and don’t want to find themselves in that position again. They work hard to make their business ultra-successful.
Financial Education helps you to see the opportunities that exist no matter what the financial markets are doing, no matter whether there is a recession or not.
Making Money in a Recession
There is no doubt, investment opportunities are different in a recession. However, preparation for a recession is key. People who have been building assets and then watch the indicators that a recession is on the way will usually have prepared for the situation by selling some investments and moving into cash. As they say, cash is king.
Cash will allow you to take advantage of lower priced assets which can be purchased with the cash you have.
Bullion is another cash asset which depending on the markets and the metals ratios will let you leverage money to take advantage of the ratios. For instance, when the Gold:Silver ratio is high you purchase silver. As the Gold:Silver ratio drops you sell the silver and transfer into gold. Then continue buying gold. Silver is the leverage to get into gold. The key to remember with Gold:Silver is not how much gold or silver costs but rather the buying power it has in a recession. If during good economic times it takes 100 gold coins to buy a property what will it take in turbulent economic times. The cost could be 50 gold coins or 10 gold coins. It’s purely guessing at this stage depending on the depth of the recession. However, if you bought 100 gold coins when they were cheaper and then were able to buy 2 houses or 10 houses, with the bullion, as the price of houses comes down and the price of gold goes up. What is your buying power?
Transfer of Wealth
It is often said that during a recession there is a transfer of wealth. But what does transfer of wealth actually mean?
For people who prepare for a recession, it means they have built income producing assets, investments, in all 4 categories of business; property; paper and cash. They balance each of the investments with each category so they always have an asset which is going up in value if another is going down. This is called hedging. A way of protecting what you have.
Investors will ensure they are earning income from as many of the 8 income sources as possible guaranteeing and protecting cashflow. This means they have plenty of resources to purchase more income producing assets when they need them the most.
As an economy starts to recover, those who bought more assets during the recession will see their wealth increase dramatically. By how much is unknown. But this increase in wealth is known as the transfer of wealth.
As countries head into recession, what will you be doing to protect yourself, your family and your financial future? Financial Education is key to this and is not a luxury but a necessity to ensure you make the best decisions you can in the circumstances.
Don’t fear a recession. Fear lack of Financial Education.
For more information about the training courses we run, email firstname.lastname@example.org or visit our Facebook Group https://www.facebook.com/groups/1032901670065445
Market Report 10th August 2020
Gold at record highs is the main focus of today’s market report. Last week Gold broke through the US$2000 barrier reaching a high of US$2075.76 before falling back to US$2030.14. This represents an overall gain for the week of 2.78%
Don’t panic! Thinking you’ve missed out on the opportunity to profit from Gold. This weeks prices were based on speculation rather than economic fundamentals so be ready for a drop in price and the opportunities that will arise.
Technical Analyst, Karen Jones, from Commerzbank said “The never-before-reached US$2000/oz is a major psychological resistance level, with gold’s 49-year trend channel resting just below it at US$1983. Only an end-of-month or, better yet, end-of-quarter close above these levels will signal a breakout in the price of gold”.
In other words, there is no support at present for the currently high prices.
Charting is a popular way to analyse bullion movement and predict where you expect the prices to go. Using a 20-day moving average and RSI indicator support for Gold is coming in at US$1875 indicating the correction on the current speculative prices could drop quite substantially.
“The 20-week moving average is currently at US$1755” says Tom Pelc an independent technical analyst.
The general consensus by analysts is the price of bullion will fall back quite sharply. However, when it goes back up, based on fundamentals in the economy rather than speculation the feeling is that gold could go up far more spectacularly offering excellent investment opportunities.
Pelc continued “if resistance is broken, Fibonacci extensions offer short-term targets. These are based on the idea that a rally will extend in predictable proportions extrapolated from a previous rally. One is at US$2067 another comes in at US$2286. Lucas ratos – another tool using a sequence of numbers similar to Fibonacci’s- suggests gold could rise to US$3598 an ounce in 4-5 years.”
If these experts are anywhere near right on their projections then there will be plenty of opportunities to make a decent profit from gold bullion in the near future.
Silver reached a high of US$29.88 before dropping back to US$28.33. This gave an overall increase for the week of 16.07%. Silver hit an all time high of US$49.45 on 18th January 1980 and then in the 2008-2014 Great Recession went up to US$42 to ounce. There is still a lot of opportunities available with this currently undervalued commodity.
It’s worth noting that despite the high prices for gold, traditionally, silver outperforms gold. Historical charts show it initially lags behind gold and when it moves it’s 3 times more than gold in either an upward or downward direction. The latest charts again show silver outperforming gold.
Put a plan together to regularly invest in small quantities and you will do well in the coming years. Using a PCA strategy will even out the costs and when the economical fundamentals support the price going up you will be in the best possible situation to reap the rewards.
ETC’s broke all records last week as more funds were transferred into them during the “gold rush”. It is estimated that ETC’s now have more gold reserves than the Bank of Japan which is a major holder of the commodity.
Where has the money been flowing
Indications to date, are that with the economic impact countries are seeing investment money go into different markets. In the UK, property prices have gone up in July indicating more investment into those markets while in the US and in parts of Europe the Share Markets have rebounded. IMF have warned that economies are unlikely to get back to pre-covid-19 until 2022. Undoubtedly, money will flow in and out of markets making it extremely volatile in the coming months.
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 email@example.com 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 firstname.lastname@example.org 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.
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.
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.
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