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.