‘If you can’t make it, fake it.’


Are you feeling confident about the future?

I am.

I’m confident this period of excess is coming to a shattering end.

Others are equally confident the illusion of debt-funded growth can be maintained indefinitely. Is this confidence, ignorance or arrogance? A question for another day.

And then there are those who are faking it in the hope they’ll make it. Deep down, they harbour doubts but must put on a brave face. Contemplating the alternative is too depressing.

Yesterday’s headlines gave us further confirmation of the dangers we’ve been warning about…that the debt legacy of the past cannot be afforded in the future.

From The Australian Financial Review: ‘Mortgage stress soars to record highs as borrowers struggle with jumbo loans’.

Here’s an extract (emphasis mine):

The number of Australian families facing mortgage distress has soared by nearly 20 per cent in the past six months to more than 900,000 and is on track to top 1 million by next year, according to new analysis of lending repayments and household incomes.

Nearly 22,000 households, of which 11,000 are professionals or young affluent, are facing severe distress, which means they are unable to meet mortgage repayments from current income and are having to manage by cutting back spending, putting more on credit cards, refinance, or sell their home.

This is the result of 26 years without recession. Risk-taking and complacency replaces prudence and caution. People have overreached and are now under the pump.

And, right on cue, courtesy of ABC News, here comes the future (emphasis mine):

NAB has flagged the loss of 6,000 jobs as the impact of new technology and digital transactions cuts a swathe through traditional banking jobs.

In announcing the cuts NAB chief executive Andrew Thorburn said the entire banking industry was under pressure to reshape its workforce.

“As transactions move to digital channels — and this is driven by our customers — we will need fewer people,” Mr Thorburn told a media briefing.

The ‘good’ news is that net job losses at NAB will be 4,000…as 2,000 people will be employed to fill ‘digitally-focused positions’.

It is not only the banking industry that’s under pressure. Every industry is caught in the technology vice.

This is a glimpse of the new world — a lesser number of highly-skilled people are needed to replace those whose education, experience and training is no longer relevant.

As the vice tightens, look for the ‘mortgage stress’ headlines to be replaced by ‘property downturn worsens’.

But the good folks in the US are having none of this gloomy outlook. Even the antics of The Donald has not dampened enthusiasm.

The latest Consumer Confidence Index reading is the second highest in 40 years. It’s no surprise the peak in confidence was at the height of the dotcom boom…and we know what happened after that.

It’s worth noting that previous peaks in confidence have been followed — almost immediately — by a recession (grey shaded areas). Perhaps it’s different this time.


Source: Advisor Perspectives
[Click to enlarge]

That (over)confidence is evident in the US share market.

With the US market going from record high to record high, almost everyone is on the bullish side of the market.

The most recent update — 19 October 2017 — on the level of assets held in Bearish Funds (funds designed to profit from a falling market) are at an ALL-TIME low.

After the GFC, asset levels were around US$900 million. But with the rise of the market sapping the bears of confidence, asset levels have fallen 90%.

fund assets

Source: The Lyons Share
[Click to enlarge]

Too much confidence breeds complacency. People extrapolate their current euphoria into the future. But we know that’s not how life works.

Nothing stays good forever, and nothing stays bad forever. Things change. 

The current mood of confidence and complacency is why I’m confident the time is right to be in cash.


Are you mad?

Why accept 2% on your money when markets are offering so much more?

Personally I’d rather have 100% of my money earning 2% than risk losing 60% or more.

This is not advice you’ll receive from the investment industry. The industry has done an excellent job of framing ‘cash as trash’.

In my book, How Much Bull Can Investors Bear? I debunk this industry myth. Here’s an edited extract:

The investment industry does not consider cash to be an asset cash is portrayed as more of a liability. The popular thinking is “money in the bank is lazy money”.

Money should be out there being put to productive use in growth assets (preferably in the growth funds they receive a fee for managing).

The reason with some validation is that over a period of time, cash loses its buying power…$100 in the bank will always be $100, with no prospect of ever increasing in value to offset inflation.

This is true provided there’s inflation, and the asset you’ve invested your $100 into is not days or months away from being decimated in value.

Cash is king for a reason. Cash provides options: the option to buy assets at a discount, and the option to secure your capital.

When a market goes into freefall for an extended period of time, you can sleep more soundly with money in the bank.

Cash is a genuine asset class that you should hold more of when markets appear overvalued and less of when markets offer you the opportunity to buy shares and/or property at a discount.

The investment industry tells us “money in the bank loses value”; however, money in the market can lose value as well. The All Ordinaries index peaked around 6800 points in late 2007. Nine years later, it’s still nearly 20% below this level.

The industry downplays the importance of cash because there are no fees to be made on recommending you stash your money in the bank.

Avoiding the looming economic crisis is a crucial first step to maintaining your wealth.

For the record, the investment industry in general does not see a crisis coming. They have the utmost faith in central bankers’ divine abilities to manage the global economy and asset markets. This misplaced faith in false gods could prove very costly to investors.

Holding cash goes against popular thinking.

There is far too much at stake to believe the industry’s BS.

Ask yourself: Why does the investment industry denigrate cash so much?

Simple answer: Because the profit margin in a cash product is wafer thin.

The industry’s ability to make a profit or not is of no relevance to you. Your priority is to keep your capital out of harm’s way; if that means having more in cash than the industry wants you to have, then so be it. After all, it is your money.

Granted, there are times when cash will get left behind.

But there are also times when investors need to seek the security of capital. Believe me, when a market downturn hits and you’re in cash, there is nothing quite like being a spectator watching the action and knowing it’s not your money being ripped to shreds.

Cash is an underestimated asset. Cash is valuable. Cash is a risk mitigator.

If the best time to cash in your investments is when confidence is high…then the timing could not be better.

To find out more on how to protect your capital from the impending collision between the legacy of excess and the future of austerity, please go here.


Vern Gowdie,
Editor, The Gowdie Letter

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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