For weeks, I have been watching markets both day and night.
This email is a candid reminder of challenges the world faces. I do not hold punches in it. Do not read it now, if you are feeling fragile. As Napoleon Hill said:
“Every adversity brings with it the seed of equal or greater opportunity.”
Any significant event gives us the opportunity to build wealth for our loved ones if we are alert, prepared and ready to act on our plans. As Napoleon Bonaparte said (and many have copied):
“Success always comes when preparation meets opportunity.”
Most world share markets are now or have been at all-time highs (ATHs) recently. Even the sleepy old Australian market, which has grown at about 15% of the rate of the US Nasdaq (since 2009), hit an ATH this week.
ATHs are normally great news. Many stocks in the share market are at ATH and all their shareholders should be happy. ACDC and GGUS are good examples for us.
There are headwinds and I have concerns about the ability of markets to sustain this blistering pace.
The original newsletter to clients referred to detailed share charts. The reference to this has been omitted from this blog to make it more readable….
World share markets have rallied due to the lavish spending by the US government, which will be paid for by the US taxpayers for at least one generation. The USA like most Western countries (and China) have ‘Baby Boomer’ crises (refer to my first book or Dr Google). This will reduce taxation revenue, at the same time as expenditure on an aging population adds to government spending. This reckless spending could not happen at a worse time. President Biden is making Trump’s spending seem conservative. He has committed about USD 4 Trillion in his first 90 days as President. That is way more than he should spend in a full 4-year term as President. Biden has plans for another round of Infrastructure with multiple Trillions on top of this. To his credit, he is planning to put the bill on US companies. This will however, lead to lower employment and a vicious cycle that makes it even harder to repay this massive debt.
Geo-political tensions are rising world-wide. For any students of history, the build-up of the industrial complex under an autocratic supreme commander in China is almost the same as happened in both Germany and Japan prior to the second world war. China is conducting the most aggressive foreign policy since Genghis Kahn some eight hundred years ago. China’s divisive ‘Belt and Road’ policy forces corrupt recipient countries (and the Victorian union movement [which has been thwarted by our Federal government]) into allowing Chinese navy (and other forces) into their countries. This is the greatest threat to world peace since Hitler and Japanese Tojo.
Russia has also been active in destabilisation. This includes influencing: the Brexit vote; the 2016 US Presidential election; and massive government supported hacking efforts.
Russian interference in Ukraine seems like a sequel to the Crimea movie that played out a few years ago. The Russian brigade thugs who shot down a Malaysian airline flight MH17 and killed 28 Australians and many others did so over eastern Ukraine. They have evaded prosecution and have been treated like heroes in Russia since then.
The current mentally impaired and weak US president has emboldened both China and Russia. Both are using puppet states in Iran, North Korea, Syria, Africa and South America to weaken world co-operation. China bribes and bullies’ smaller countries to influence the UN, WHO and WTO, etc. Like the ridiculous findings of the joint WHO and China investigation into the source of the Coronavirus, in which China refused to produce any of the vital evidence into the initial Covid fatalities which they have in their possession. There is only one reason why they continue to withhold that evidence.
The whole world has too much debt, right now. This includes most Federal governments; state governments; corporates; and consumers. The US debt now (as a proportion of GDP) is like what it was after World War II. Should there be a World War III, then the total world debt after WWIII will make the following depression far exceed the Great Depression of the 1930’s. It took US share markets over 30 years to convincingly exceed the pre-crash levels of 1929.
I genuinely hope that I am wrong about China’s intentions of world domination at any cost. Like any parent, I do not want my teenage son to have to go to war against one billion Chinese with superior industrial production. My grandfather fought with valour in North Africa and the Kokoda trail. The brutality that he lived through was beyond belief for most people.
At present, the world has many geo-political hotspots, including:
- Taiwan (which I believe will be brutally invaded) by China in the next 2 years. The Chinese hunger to control semiconductors to dominate world commerce. If you were a merciless Chinese tyrant leader, would you rather face the USA with a mentally impaired wimp Commander in Chief or run the risk that a patriot (with a military history and children in the military) like Mike Pence could win the next election. It is a no brainer.
- Russia will invade and annex, at least eastern Ukraine; in the same timeframe, for the same reasons. They will get a slap on the wrist and few sanctions, like when they annexed Crimea. Déjà vu, or Groundhog Day?
- Yemen. The Saudi’s are using US planes and US missiles to brutalise the Yemeni civilian population. Remember that over 90% of Terrorist attacks on the US including 9-11 were financed from Saudi money. The Sunni Saudis desire to eliminate all Shiites in Iran, Iraq and Yemen etc. Instead, they are probably uniting them. The US should take a more responsible position. Particularly after the Saudis killed and dismembered a US journalist in their Turkish embassy and the US has published the truth on this matter. Iran is now awfully close to China. This makes the prospects of a continuing and expanded war in the Middle East a more dangerous proposition. Iranian nuclear technology can be expected to improve in the same way as China aided North Korea to destabilize Asia. This aids their plans of dividing and eventually invading more Asian countries. With Russia firmly imbedded in Syria and now having a Mediterranean port in Crimea. The plot thickens. The whole region is more unstable now than it has been since WWII.
- Venezuela is being funded and destabilized by Russia. It looks like Cuba all over again. Kennedy was willing to go to war to prevent Russia installing nuclear weapons in Cuba. Biden is like an old dog without any teeth. A lot of subdued barking with no bite. Nuclear weapons in the northern part of South America, with a short flight to the USA, is a possibility.
Many financial advisers prefer to place their heads in the sand like ostriches, rather than deal with a rapidly destabilising global reality. My company’s responsibility as a financial adviser is to act in our clients’ best interest, no matter what happens. We will continue to do just that.
History has proven that people with great courage and intelligence make themselves much wealthier in times of crisis. This was the case in all the depressions of the 18th, 19th and 20th Centuries.
There are more sophisticated financial instruments available to retail investors now, than at any time in human civilisation. I personally use many of these tools right now. Many others are readily available. Smart people prepare strategies and arrange their affairs before a crisis (as succinctly put in the Napoleon quote above). Preparation before opportunity always leads to success. It is worth re-reading the relevant ‘ASK’ chapters in my first book How to Build Riches.
We have short- medium- and long-term opportunities to plan for. I will briefly deal with each:
- SHORT TERM- Markets could pullback in the next month, for several reasons.
There is the risk of a ‘Black Swan’ event when a significant event occurs in Taiwan, Ukraine, or the Middle East.
Markets will also fall again when government bonds become harder to sell by USA and EU governments, who need these borrowed monies to forward their excessive spending. This leads to governments decreasing the face value of sold bonds. This increases the real interest rate to the bond holder. That makes bonds more attractive and shares less attractive. World bond markets are at least twice as large as world share markets (even at the current extended levels of world share markets).
Many prudent investors including Bill Gates have reduced exposure to some shares. A market pullback will be healthy now. The attached charts show markets are overheated. Buying back after a pullback, into similar and/or other select shares and index ETFs, makes good sense. I suggest taking profits and selling some shares. I recommend selling …. Hold other shares for now. I will suggest a better time to sell these in the coming days and weeks.
- MEDIUM TERM- If you and a partner, spouse or friend do not have a self-managed super fund (SMSF) then it is worth planning to do so from 1 July 2021. SMSFs can invest directly in the USA, as well as many other investments that are not available to almost all super funds. This is only worth doing if your collective investments will be over $100,000 minimum (and preferably over $150,000). Tax treaties between Australia and USA, ensure you only pay tax at reduced rates in Australia. The people who will make the most wealth when markets start to fall apart, in the next 6 to 18 months, are the ones who have established their optimal structures and accounts funded and ready to invest when opportunities present themselves.
With a SMSF, you can make money when markets fall (at a faster rate than in a rising share market). You can establish a US investment account and start investing in Simulated trades (paper trading) for under USD$2 per week. There are several reasons to do this. Call me to discuss if you will consider this. At this time, I will provide all the investment and trading support to existing customers for free. Others charge between $5,000 to $20,000 (or more) for this education and assistance. I have invested significantly in such education for decades and continue to do so.
- LONGER-TERM- The smartest and most astute investors will have their funds and strategies in place BEFORE world share markets hit bottom. This should occur from late 2022 to 2024. Buying the best companies in the world, with the security of US Securities legislation is a perfect complement to owning Australian high dividend companies. This is worth preparing for. The same structures that are used in the Medium-term can mostly be used here. Advance preparation, Simulated trading and refining structures and strategies always produces a better result.
No matter what the future holds, preparation leads to greater success. Call me if you wish to discuss your personal circumstances, opportunities and to refine your personal investment plan.