Juggling Dynamite

Those few of us who were paying close objective attention to financial market developments over the past 10 years were able to see the 2008 financial crisis coming.  We have also been fully aware that nothing was fixed in the aftermath of 2008 and that the extend and pretend policies orchestrated by central banks, regulators and the banking cartel since, have actually increased leverage and financial risk in world markets.  ‘The Big Short’ is just one of many films and books over the past few years to effectively underline this point in a way that pretty much everyone can understand (provided one wishes to see truth, that is).

Hedge fund manager George Soros is one who has been raising the alarm.  Speaking at an economic forum in Sri Lanka this week, he reiterated his concerns in plain language. For those still blindly holding over-valued assets with your savings, you have been amply warned…Hope is not protection or an intelligent investment strategy.

Billionaire financier George Soros is warning of an impending financial markets crisis as investors around the world were roiled by turmoil in China trade for the second time this week. Here is a direct video link.

Something important is being widely overlooked to date in the asset declines of 2015. Foreigner investors that held US assets (stocks, bonds, real estate) have been shielded from losses to a large extent to date by the appreciation in the U$ currency.

In other words, although many US assets lost value in 2015, because the U$ appreciated as against most foreign currencies, many foreign holders noted net gains and not losses to date on US assets. For example, Canadians who held the S&P 500 or funds and ETFs based on it, saw those positions rise in C$ value in 2015 even as the S&P lost value. (Those holders would have made higher C$ gains with less risk just holding the currency and not the falling assets, but few pay attention to this).

The bottom line is that the masking effect of the rising U$ to date has prevented many from selling what would otherwise be losing positions in their portfolios. But once the U$ rise slows or begins to reverse however, the positive portfolio effect will subside. Then as US assets decline or even stay flat amid a falling U$, people will suddenly notice capital losses. At that point foreigners who have bought high and stayed too late in the cycle will look to bail out all at once. That is when the bear will have its usual maul of complacent capital, and will set up buying opportunities for the few who have stayed on guard and prepared for it in advance.

Some good reminders in this segment re the bear market that is already underway in many markets and assets in the world…confirmation of recession in the official data always lags leading indicators.  Proactive risk management that gets ahead of the cycle is critical.  Also it’s important to understand that the downturn now unfolding in asset markets has been earned by an epic period of falling interest rates, ballooning debt levels and rising corporate profits from 1982 to 2015.  It also purchased for the world the present period of secular stagnation and treacherous market conditions: specifically falling asset prices, declining debt levels, and thereafter, higher and rising yields as corporate risk is repriced back to realistic levels once more.

Marc Faber, investor and author of the “Gloom, Boom & Doom Report,” talks with Francine Lacqua about his call that the Federal Reserve has launched a U.S. recession, the investment opportunity in 10-Year and 30-Year U.S. Treasuries, troubles in the Chinese economy, and his preference for emerging markets. Here is a direct video link.