Monthly Archives: January 2014

Stock markets will crash by 50%, really?

“We have no right to be surprised by a severe and imminent stock market crash,” explains Mark Spitznagel, a hedge fund manager who is notorious for his hugely profitable billion-dollar bet on the 2008 crisis. “In fact, we must absolutely expect it.”

“We are in a gigantic financial asset bubble,” warns Swiss adviser and fund manager Marc Faber. “It could burst any day.”

Even billion-dollar investor Warren Buffett is rumoured to be preparing for a crash as well. The “Warren Buffett Indicator,” also known as the “Total-Market-Cap to GDP Ratio,” is breaching sell-alert status and a collapse may happen at any moment.

Is there an inevitable crash coming soon? According to several reputable experts, it is only a matter of time before the stock market plunges by 50% or more. Yes, crashes will keep coming: History lesson: The 1929 crash led to the Great Depression. So the stock markets will crash by 50%.  Really? One thing is certain about the economy, there will always be uncertainties. As sure as the sun rises, there will be another credit crisis. How do we know? It’s because the entire financial fiat system is based on credit! When is it coming? No doubt, there are plenty of warnings, both in the secular and Christian circles. If you were to read the book of Revelations, there’s one thing that you’ll realise: things are going to get worse. If you are a mother, you’ll understand the meaning of birth pangs mentioned in Matthew. It just gonna get meaner and faster.

What can we do? Nothing much, actually. One option is to withdraw all stocks and convert to cash. Or property. Or… gold. But the main is issue here is not “if”, but “when”. Timing is everything. Isn’t it? But how are we going to know when to invest, and when to pull out? If you don’t know when to invest or pull out, then isn’t that… gambling?

The recent boom and bust of the global economy over the last decade, from which many portfolios are still creeping up, not only left investors questioning their strategy for risk, but helped shine the spotlight on the importance of diversifying. That’s one way to go. The principle of diversification. Emerging markets may offer excellent growth potential. And of course, there is gold. But be warned, all investments have risks.

A little known statement tucked away in a little known part of scripture unveils that this is indeed a universal strategy for long-term investing. “Divide   your portion to seven, or even eight, for you do not know what misfortune may   occur on the earth.” says Eccl  11:2.

Have you heard of stories about people earning millions and you thought they had it all made, when suddenly they are declared bankrupt? And you wonder to yourself   “what happen?”. A typical mistake is to dump all your money into an investment and then when it sours up, you lose everything. Failure to diversify.

There are those who mock diversification and almost treating this concept with contempt.   But what does the Bible say? Ecclesiastes 11:2. Diversify.

Diversification is spreading your money among many difference types of investment. When you do   this, you lower your overall risk. There are many ways to diversify. You can diversify by spreading your assets, diversify with different investment styles, diversify by geography, and so on and so forth.

Diversification by assets can be in the form of stocks, real estate, bonds, cash, and even precious metal like gold and silver. However, diversification does not mean you jump into it blindly. Do your research first. Diversification by investment styles can be in the form of value-driven investment, market orientated investment, and small capitalization investment.

Real estate represents an investment that can benefit from geographical diversification. International investments comprise another asset class that could and should be invested geographically. Perhaps we can learn something from history. After all, for centuries, many investors have slept comfortably in the knowledge that if they diversify their assets wisely among stocks, bonds, commodities and cash, they will do well enough over the long term.

That’s the key, “the long term”. Proverbs reminds us the dangers of “quick get rich schemes”.  So here are some basic but easily forgotten principles that gives wisdom: 1) Buy low, sell high. 2) The only investments that you can ”buy and hold” are those that provide an income stream with a return of principal function.

If you wish to learn more, many of these principles are laid out in our successful course, the Scriptural Financial Freedom series. You can  download the Small Groups kit.

Golden opportunity to buy gold?

Gold continues to fall, it’s taken a sharp turn lower and is now trading below at $US1300 an ounce. After years of gains, the price of gold is steadily dropping, and may continue to drop. It sank to $1,180 an ounce on June 27 — its lowest value in nearly three years — before rising again.

“We remain cautious on the outlook for gold, as the metal faces two strong headwinds,” says Michael Lewis, head of commodities research at Deutsche Bank. “The 1-month GOFO rate has moved into positive territory, suggesting an easing of physical tightness while the stronger-than-expected non-farm payroll data has strengthened the case for the Fed to begin QE tapering before year end, which we view as U.S. dollar bullish.”

People typically invest in gold  because of one reason. They fear inflation rates are eroding their spending power and they want an investment that they believe will hold its value better than cash.

But if such concerns have pushed people to buy gold since the global economic crisis started in 2008, recent events are giving them cause to reconsider. Chart-based selling pressure was featured amid a lack of bullish fundamental news for the metal.  Better-than-expected U.S. jobs and growth data fuelled demand for the dollar by fanning expectations for the Federal Reserve to begin scaling backs monetary stimulus programs in the near future. Notably, gold and the dollar trade inversely with one another.

Are there additional reasons why gold is falling?

Yes, and they concern the biggest investors of all — countries that buy gold.

During the global economic crisis, many countries have sought to increase their gold holdings so they would not be left with too much of their reserves in hard currency that could lose value.  In 2012, central banks’ gold purchases rose to a 48-year high and represented 12 percent of global demand, according to the World Gold Council.

But as the price of gold drops, buying gold looks like an increasingly unpredictable business. Russia, Turkey, Azerbaijan, and Kazakhstan all boosted their gold holdings in March 2013, only to see gold’s price slump by $270 an ounce by mid-April.  Now, with the U.S. economy looking set to gain strength, the dollar suddenly appears more attractive again. Central banks can choose whether to buy gold or to return to holding hard currency, and the previous upward pressure they put on gold prices is easing.

So what is the future of gold? Will it drop further? And is it a good time to buy gold?

Regarding how far it can drop, some analysts point out that gold was about $800 an ounce before the global economic crisis began in 2008, so there is little reason to expect it to fall beyond that. That would be quite a big drop – but not impossible.

Regarding the future of gold, unfortunately the signs are popping up everywhere that something very bad is about to unfold in the financial world on Wall Street and the global markets. There are some obvious and clear warning signals and when you put together this string of events over this time period, it should be clear that all something is about to happen on multiple fronts converging at the same time. It doesn’t take a rocket scientist to figure this out.

From outrageous ammo, assault rifle, and armoured vehicle purchases by multiple governmental agencies, including the Social Security Administration and Department of Homeland Security, among others, to reports are that the Department of Homeland Security (DHS) is engaged in a massive, covert military build-up. Evidently, someone in the US government is expecting some serious civil unrest.

From the known derivative liability of the top five banks in the United States, to preparations for martial law. The latest temporary government shutdown that lasted 3 weeks can be seen as a test, and of things to come. Riots and unrest are not out of one’s imagination. Martial law was avoided during the last crisis when legislatures succumbed to pressure and bailed out the banks. But many pundits are saying that another collapse is imminent — and this time, governments may not be so willing to step up to the plate.

Just take a look at the recent data on states that have more people on welfare than are working. The unemployment situation (in the United States) is as bad as ever and grossly understated, the real unemployment rate is probably 25 per cent. The real inflation rate is closer to nine per cent and is kept low by government agencies keeping the official cost-of-living increases artificially low by changing the basket of goods to be measured.

Something is seriously wrong with America. And the world economy. Governments are engaged in a “race to debase” their currencies. Some, like Japan’s government, are trying to end decades of economic doldrums. Others are cranking up their printing presses to inflate their currencies and get away from mountains of debt.

It’s time to get ready. It’s time to prepare yourself for the “transfer of wealth” – if you know what to do. Is it gold? You decide.