Build Your Ark Before it Rains

When Noah built the Ark it wasn’t raining. Noah became the laughing stock of the town.

However, believing in the message he received gave Noah the strength to continue with the boat building task.

Eventually Noah had the last laugh.

Apparently the forty day and night flood was needed to cleanse the earth of man’s wickedness.

In my opinion, the markets are also sending a message. A financial flood of biblical proportions is headed our way. The wickedness of central bankers needs to be purged from the system.

Trying to build an ark (to safely store your cash) after the flood hits, is futile. Your capital will be underwater before you lift the first plank of timber.

The storm clouds have been brewing since 2007 — the lightning bolts of the subprime crisis gave us a hint of what was to come.

The reaction from the central bankers was — storm? What storm? With Bernanke telling us ‘subprime would be contained’

The storm did hit. The heavens opened up in 2008 with the collapse of Lehman Brothers. Those riding high on the market’s waves in rafts made of margin lending were declared ‘lost at sea’. Their capital has never been recovered.

The central bankers managed to build a wall of QE. A wall stacked high with enough dollar bills holding back the flood waters threatening to cleanse the earth of the evil of Wall Street.

The dam(n) wall worked. After a minor purge, Wall Street was back in business…with bonuses bigger than ever courtesy of a wall built with taxpayer dollars.

On 11 November 2013, former Federal Reserve insider Andrew Huszar, wrote an article in the Wall Street Journal titled ‘Confessions of a Quantitative Easer’.

Here’s the opening paragraph (emphasis is mine):

I can only say: I’m sorry, America. As a former Federal Reserve official, I was responsible for executing the centerpiece program of the Fed’s first plunge into the bond-buying experiment known as quantitative easing. The central bank continues to spin QE as a tool for helping Main Street. But I’ve come to recognize the program for what it really is: the greatest backdoor Wall Street bailout of all time.

The central bankers and easily-bought politicians have shamelessly used public policy and taxpayer dollars to move the greatest Ponzi scheme in history higher above the flood plain.

For the past six years every effort has been made to reassure the dumbed down public the dam(n) wall is structurally sound.

When in fact the foundations, supporting this wall of ever-increasing debt, are wafer thin.

The cracks in the wall are beginning to show.  And the storm clouds are once again rolling in over the horizon. Only this time the clouds look to have a menacing green tinge.

The Greek debt crisis exposed a weakness in the QE wall.

Trying to solve a debt problem by giving an insolvent country more debt is sheer lunacy — according to one of the greatest minds in history.

We cannot solve our problems with the same thinking we used when we created them.

Albert Einstein

Yet what do those wicked people in Brussels do? Give Greece another 80 billion euro ($128 billion) of bailout funds. There is not a QE bucket big enough to bailout the rising waters of debt that Greece is drowning in.

The QE wall has a few more billion added to it.

Then we have the Great Wall itself suffer structural damage from a 30% fall in the Shanghai Composite index.

For a little perspective on this mini-meltdown, the Shanghai Composite index had risen a phenomenal 150% in 12 months. During this period of irrational behaviour on the way up, not a peep came from those wicked central planners.

Anyone with a heartbeat knows that a market that runs that fast in such a short space of time has to take a breather. A 30% correction was as natural to markets as breathing is to humans.

Not so in China. This crack in the wall had to be plugged. Rational behaviour on the way down is outlawed.

According to Reuters:

China has enlisted US$800 billion worth of public and private money to prop up its wobbly stock markets.

The Shanghai Composite index bottomed around 3600 points in early July and is currently around 3950 points. Do the maths — to move the market up 350 points has cost over US$2 billion a point. What do you reckon, money well spent? This is madness.

The QE wall just got a lot higher and lot more unstable.

Another crack in the Great Wall came with China’s recent currency devaluation. Less than a month ago China proudly declares its economy has grown by 7%. As Gomer Pyle (sorry for showing my age) would say ‘surprise, surprise, surprise’.

Seriously why do the boffins in Beijing bother with this facade? China has devalued for one reason and one reason only, to breath life into their manufacturing sector by making exports cheaper.

On 16 June 2015 I wrote a Markets and Money article titled ‘USD/JPY 125 is code for Deflation’.

This is an extract:

China is the big story.

China’s currency (renminbi) has remained closely pegged to the US dollar for the past 4-years.

The depreciating yen is therefore making Chinese products more expensive in the US.

China (with factories as far as the eye can see and further) is not going to sit idly by and watch Japan ‘eats its lunch‘.

The engagement of China in the global currency war is another major crack in the QE Wall.

Naturally Beijing says the recent devaluation is a once-only occurrence. Yeah right, just like their GDP growth numbers are an accurate reflection of the economy.

The QE wall is getting higher and higher with each passing day. The majority are complacent. They believe the wicked little central bankers are actually the good guys. These charlatans have built a wall that is inherently unstable. It was constructed on the foundation of a lie…that we could continue living beyond our means.

You can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time.

Abraham Lincoln

Not everyone is fooled by these wicked charlatans.

In June 2015, Bloomberg published an article titled ‘$138 billion Swedish fund slashes equities to escape “herd”.’ According to the article:

Swedbank Robur, which oversees $138 billion in assets, has more than halved its equity [share] exposure at some funds to avoid being caught on the wrong side of markets once the “herd” realizes stocks are over-valued.

It looks like Swedbank Robur have started building their Ark.

Swedbank Robur’s Head of Multi Asset, Per Storfaelt said ‘…central bank stimulus in Europe has propped up markets and encouraged investors to expect a helping hand even though stocks are over-valued.

Just about everyone expects central bankers to keep adding to its wall of QE to keep the floodwaters at bay. There is such widespread belief in the central banks ability to make the sun shine forever. As markets have told us over and over and over again, you should expect the unexpected.

The global deflationary forces that are in play — and now unofficially recognised by China’s devaluation — are going to play havoc with government, corporate and household incomes.

The contractionary forces are going to usher in a downpour lasting far more than forty days and nights.

In the deluge of written down revenues, share and property market values are going to be washed away.

The earth needs to be purged of sufficient debt to once again flourish. How much of the world’s official debt pile of US$200 trillion needs to be written off to achieve this objective is as yet unknown. But my guess is it will be more than half. This is going to be a very long and painful process.

Start building your Ark of cash now.

For those thinking it is safe staying aboard the good ship US Public Debt, here’s a word of warning.

Source: US Treasury

The US Government have built an Ark of debt with a giant winged keel. As that winged keel continues to increase in size, it’ll eventually hit a bond market iceberg.

Be assured, The captain and his first class passengers from Wall Street will all have reserved seats in the life rafts. The rest, who believed the propaganda that ‘God himself could not sink this ship’, will be left to face the wrath of the markets.


Vern Gowdie,

Editor, Gowdie Family Wealth

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Vern Gowdie has been involved in financial planning since 1986. In 1999, Personal Investor magazine ranked Vern as one of Australia’s Top 50 financial planners. His previous firm, Gowdie Financial Planning was recognized in 2004, 2005, 2006 & 2007, by Independent Financial Adviser (IFA) magazine as one of the top five financial planning firms in Australia. He has been writing his 'Big Picture' column for regional newspapers since 2005 and has been a commentator on financial matters for Prime Radio talkback. His contrarian views often place him at odds with the financial planning profession. Vern is is Founder and Chairman of the Gowdie Family Wealth advisory service, a monthly newsletter with a clear aim: to help you build and protect wealth for future generations of your family. He is also editor of The Gowdie Letter, which aims to help you protect and grow your wealth during the great credit contraction. To have Vern’s enlightening market critique and commentary delivered straight to your inbox, take out a free subscription to Markets and Money here. Official websites and financial eletters Vern writes for:

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