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What is the Gold Standard and How Does It Work?
7/30/2020 9:26:50 AM

What is the Gold Standard and How Does it Work?

Over recent months there has been growing support in the EU to go back to a Gold Standard.  But what is the Gold Standard and how does it work?  Will it work in a modern society?

The Gold Standard was around for hundreds of years.  It was a commitment by participating countries to fix the prices of their domestic currencies to a specified amount of gold. National money and other forms of money were freely converted into gold at the fixed price.  The UK used a type of gold based standard as far back as1717 before formally adopting the Gold Standard in 1819.  In 1834, the United States fixed the price of gold at $20.67 per ounce, where it remained until 1933. Other major countries joined the gold standard in the 1870s. The period from 1880 to 1914 is known as the classical gold standard.

 

Why did the Gold Standard Break Down?

During WW1 countries needed to print money to pay for the cost of war.  It became impossible for the countries to hold enough gold in reserves to cover all the currency being printed.  It was briefly reinstated from 1925 to 1931 and called the Gold Exchange Standard. Under this standard, countries could hold gold or dollars or pounds as reserves, except for the United States and the United Kingdom, which held reserves only in gold. This Gold Exchange Standard broke down in 1931 following Britain’s departure from it due to it being unsustainable to keep gold reserves with the amount of debt and capital expenditure required for the British economy.

In 1933, during the Great Depression in the US, President Franklin D. Roosevelt nationalized gold owned by private citizens. The Gold Exchange Standard was abandoned as the US tried to create jobs to help bring the country out of depression.

 

Replacing the Gold Standard with a Dollar Based Standard

The Bretton Woods agreement was created in July 1944 when 730 representatives from 44 countries, mostly WWII Allies got together at Bretton Woods, New Hampshire, US.

Under the agreement, countries promised that their central banks would maintain fixed exchange rates between fiat currencies and US dollars. If a country's currency value became too weak relative to the dollar, the bank would buy up its currency in foreign exchange markets. This would lower the supply of the currency and raise the price.  If the value of the currency was too high then the central bank would print more money, thereby, reducing the currency’s price.  Under the agreement trade wars would not exist as each country agreed to regulate their currency so no country could benefit from manipulating the value of their currency.  The agreement meant that the Gold Standard ceased to exist and the world move onto the Dollar Standard.  The dollar was pegged to a set value of gold 1/35


The Collapse of the Bretton Woods System

In 1971, the United States was suffering from massive stagflation—a combination of inflation and recession, which, in turn has an effect on unemployment and economic growth prospects.

In response to an alarming drop in value of the US dollar, caused by too much currency in circulation, President Nixon started to devalue the dollar against gold. Nixon revalued the dollar to 1/38 of an ounce of gold, then 1/42 of an ounce. The devaluation plan backfired. It created a run on the U.S. gold reserves at Fort Knox as people redeemed their quickly devaluing dollars for gold.

In 1971, Nixon passed legislation removing the dollar from gold backing. Without price controls, gold quickly shot up to $120 per ounce ending the Bretton Woods system.

The creation of Bretton Woods resulted in countries pegging their currencies to the U.S. dollar. In turn, the dollar was pegged to the price of gold, and the U.S. became dominant in the world economy. The U.S. was the only nation that could print the globally accepted currency, and countries had more flexibility than they did with the old gold standard.

When the dollar ceased to be pegged to the price of gold, it became the monetary standard with other currencies pegging their currencies to it.

 

A Society Based on Debt

In a previous blog, I discussed how today’s economies are based on debt.  Every pound, dollar, euro or whatever the currency is for a specific country is loaned into existence.

Relevant governments agree to pay interest to holders of the debt (Bonds) until the debt is repaid.  Successive governments need to generate more debt each year to cover the costs of servicing the debt, running their infrastructure services such as hospital, schools and benefits.  There is insufficient tax take each year to balance the books and so more money has to be raised to meet the ever-increasing demand.  Governments are in a continuous spiral of creating more and more debt to provide for the services within their countries. 

The growth of debt is exponential, just look at how much was printed by each country for the first wave coronavirus.  America was in the Trillions of Dollars, Britain was £600+ billion and growing.

In the 2008-2014 Great Recession, governments adopted what was called “Austerity Measures” where they tried to cut back on debt spending and bring their countries debt under control.  The measures were in place for many years and was an experiment that was doomed to fail not only as countries could not balance their books (despite coming up with creative ways to seem as if they had) but it had far reaching consequences to economic growth with many countries barely coming out of recession.(again figures were manipulated for it to appear they had)  When the world economies are based on debt suddenly telling its citizens to reduce their own debt, start saving and stop shopping means the flow of income for growth stops.  It reduces the tax intake for countries forcing them to lend more money into existence.  It’s a vicious cycle.

 


A Gold Standard

This brings me back to the opening statement that EU are floating the idea of going onto a gold standard.  Will it work in modern society?

My belief is no.  Bullion has had a free run since 1971 and has become the safe haven for investors.  With the amounts physically held in storage by investors and the growing debt based economy it is doubtful that there is enough gold in circulation to meet demand.

The effect of coronavirus around the globe has seen many mines closed and the production of gold and silver has been greatly reduced.  Hence, when economies are struggling and people are looking for safe haven investments there is insufficient supply to meet demand resulting in the soaring prices we see today.  Most of the growth to date has been speculative with very little traditional investment.  It will be interesting to see where the price is likely to go once mainstream investors start moving into gold and silver.

China has on several occasions, raised the prospect of moving from dollar based markets to yuan based markets.  As a country which, denies it, but undoubtedly, manipulates the price of its currency the prospect of moving to a Yuan based global market is unlikely.  However, it is possible there could be some break away countries that support the Yuan and there could be 2 separate currency markets one pegged against the dollar and one pegged against the yuan.

Central Banks have started to purchase gold and hold reserves.  Since the introduction of the Basel3 agreement in April 2019, gold was deemed a zero risk asset many banks started to purchase gold to increase their reserves.

Gold would need to be nationalised for governments to move onto a gold standard again.  With the amount in circulation, with reserves held in banks, any form of nationalisation would collapse the world banking system.

I am sure, there are economists with more knowledge than I have about the money markets and the global economy who are behind the scenes trying to come up with a way of introducing a new type of gold standard, especially if, the EU are looking at it.  But, my belief is the economy is too fragile to be able to cope with the transition to a new gold standard.  Any transition, if implemented would most likely be once there has been a collapse of economies and currencies. Only time will tell.

Market Report 27th July 2020
7/27/2020 8:49:45 AM

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.

 

Currencies

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.

 

Commodities

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.



Shares 

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%?
7/23/2020 8:50:32 AM

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 info@2pound73club.co.uk 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
7/20/2020 8:37:12 AM

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.

 

Share Markets

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.


 

Commodities

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
7/16/2020 10:44:13 AM

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 info@2pound73club.co.uk so you too can discover just how boring investing is.




Market Report 13th July 2020
7/13/2020 9:07:06 AM

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.

 

Other news

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.


 

Commodities

Gold – has remained fairly flat this week with a 1.36% increase to $1799.74

Silver – continues it’s upward trend reaching $19.07 before dropping back to $18.75 but even at this price it has gone up 3.73% in one week.

Gold:Silver Ratio – is reducing down from a high of 125 to this week being 95.93 indicating silver is still the best investment opportunity.

Oil – Arab Countries are struggling with the drastic cuts in oil production which has results in a severe drop in oil dollars affecting the liquidity of Middle East Banks.  Governments are encouraging mergers to keep some banks afloat with reports that $440 billion in deal mergers is currently on the table.

Natural Gas – Egypt has issued a decree for all new cars in the country to be run on Natural Gas.

Alternative Energy – Scientists find a way to harvest water droplets and converting them into electricity.  This means the new method can generate electricity from rain and other sources using a system of converting mechanical energy to electricial energy.  The stability of the system allows the energy to be stored in excess of 100 days with little degradation.

 

Fake Gold, Shadow Banking and how this impacts on you
7/9/2020 1:14:34 PM

Fake Gold, Shadow Banking and How it Affects You.

Why does finding 83 tonnes of fake gold in a Chinese Vault have major impact on the Global Shadow Banking industry and how is that likely to affect you?

Before we talk about the fake gold, let’s look at Shadow Banking and what it is.

 

What is Shadow Banking

Shadow banking is a generic term used to describe financial activities that take place between non-bank financial institutions globally.

Some of the different types of institutions you would find using the shadow banking system are investment banks, mortgage lenders, money market funds, insurance companies, hedge funds, private equity funds and loans which are not regulated.

The shadow banking system is not regulated, and has successfully fought against regulation, on the grounds that, unlike traditional banks and credit unions, the organisations which operate in the shadow banking industry do not take “over the counter” deposits from clients.

Derivatives, mortgage bundle packaging and peer-2-peer lending have been major growth areas in the shadow banking system.  The value of these types investments is unknown but it has been estimated that derivatives alone are in the quadrillions of dollars value bracket.  The Chinese shadow banking system is said to be worth $3 Trillion per year.

Since 2017, China entered the derivatives market directly targeting risky financial practices such as excessive borrowing and speculation in equities.  This has had a flow-on effect of boosting the Chinese Share Market and creating a “cannot fail” attitude of many investors in the Chinese Markets. 

Shadow banking institutions were deemed to be the innovators in the financial markets and were able to finance deals, such as real estate and other major lending which would normally, not be accepted due to rules on capital and liquidity that are required by traditional lenders.  These regulations are in place to prevent bank failures, runs on banks and supposedly financial crises.

 

Fake Gold

China is now at the centre of one of the biggest gold scams in recent times. This is due to a company call kingold.  The company is supposed to have taken out risky high value loan for various projects which failed due to various economic circumstances. 

The loans were backed by gold assets (83 tonnes of gold valued at 14 billion yuan) and insurance company’s underwrote the loans due to the gold backing.  Kingold defaulted on loans and the lenders attempted to seize gold bars to cover the defaults.  However, it was discovered that 83 tonnes of gold, set aside as assets for the loans are in fact, gilded copper.

There are major repurcussions from this in the shadow banking system as 5 Chinese banks were behind the loans and it is unknown how they will be affected and if the market could collapse.  83 Tonnes of Gold equates to 22% of China’s annual gold production affecting the gold market.

The credibility of the insurance companies is affected as they failed to audit the gold.

In addition, US lawmakers have started removing Chinese companies from the US share markets as they have failed to allow auditing.


 

How Does this Affect You?

In 2008, the shadow banking system (called the sub-prime market) was the catalyst for the credit crunch and subsequent global recessions.  The system broke down as a result of several economic situations which affected the public and institutions being able to meet the payments.  This was exacerbated by the hurricane which hit New Orleans where many home owners were uninsured and just walked away from their mortgage payments.  In addition many mortgages were coming out of the fixed term adding to borrowers unable to make payments. 

Asset security was undervalued or the value not even know and trust between banks ceased to exist.  In his book, Mervyn King, the current Bank of England Governor, says that if he and Hank Paulson, his equivalent in the US were trying to keep the markets working.  They were just 30 minutes away from the total collapse of the financial markets and fiat currency.

Wind forward to 2020, history is repeating itself and stability in the shadow banking system is on shaky ground.  Instead of the hurricane, we have the coronavirus outbreak with the economic repercussions from the fallout.  We are facing a perfect storm which could trigger one of the biggest economic crashes in history.

 

How Can you Protect Yourself?

Financial education is key to protecting your wealth and your future.  Bullion is definitely a major investment opportunity, as I write this, which should not be overlooked.  Both Silver and Gold provide a hedge against downturns and insecurity within the markets.

For example, over the past month as all this news is breaking together with coronavirus second wave, gold has risen in price by 5.30% and silver has gone up 6.79%. 

To learn more about the investment programs we run join our FB investment group https://www.facebook.com/groups/1032901670065445  or contact us for more details at info@2pound73club.co.uk

 

 

 

Market Report 6th July 2020
7/6/2020 10:04:19 AM

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.

 

Business

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.

 

Shares

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.

 

Commodities

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.


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Why is Money Flow Important
7/2/2020 9:16:41 AM

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.

 

Investment Cycles

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.


 

Probability

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.

 

 

 

9 items total

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