Ghosts of Crashes Past

2018 began with a bang. But it was followed by deafening silence.

Gone are the incessant headlines touting that bitcoin could ‘reach $1 million’. And the mania surrounding cryptocurrencies has quieted as the all-star coins plummeted one by one.

In the past 24 hours alone litecoin has dropped 20%, with ethereum, ripple, dash and cardano all experiencing similar falls. And although bitcoin has now climbed back up to US$10,000 from the low of $6,000 this month, it’s nowhere near the dizzying top of almost $20,000 in December last year.

The optimism and excitement that was once palpable has dissolved into scepticism. People are no longer confident that cryptos will keep on rising. And as people collectively come to their senses, this lack of confidence has wriggled its way into Wall Street.

Although everyone seems to have moved on, the global stock market’s freefall earlier this month was a hint of something brewing beneath the surface.

The mainstream media was quick to take the view that there was ‘no reason for panic’. That the recent market decline was just a hiccup with no long-term consequences.

But it’s this complacent attitude that has caused colossal damage in the past — stunting meaningful debate over the state of our economy.

The Dow Jones’ fall of 1,200 points on 5 February shouldn’t be dismissed as a mere glitch. It was the biggest closing point decline on record. For some perspective, Warren Buffett lost $5.1 billion on that day alone.

The volatility and panic selling also had a ripple effect on global markets. The Shanghai Composite Index fell by 5.6%, Japan’s Nikkei fell by 3.5% and Hong Kong’s Hang Seng slipped more than 4%. Overall, $4 trillion was wiped off the value of global markets in the space of two days.

A number of reasons could be cited as the cause. Including fears over inflation, rising bond yields and mounting global debt. 

Times of uncertainty

However, the key word here is fear. There is a lack of certainty about where the market will move next, and past crashes are fresh in investors’ minds. This anxiousness is reflected by the recent spikes in the CBOE Volatility Index (VIX) or, as many rightfully call it, the ‘fear index’.

As market success is hinged on public confidence, this isn’t a good sign.

Many thought the worst was over. But the S&P 500 index is currently on a rollercoaster ride, rising and falling erratically. The Dow Jones and NASDAQ aren’t faring much better either.

Jim Rogers, a veteran investor and chairman of Rogers Holdings Inc., is predicting the worst, stating:

When we have a bear market again, and we are going to have a bear market again, it will be the worst in our lifetime. Debt is everywhere, and it’s much, much higher now.

Australia is also in the firing line of this forecasted economic instability. Especially with the Royal banking commission now underway, there is definitely more disenchantment to come.

The concern over whether the bull market is coming to an end is valid. But it’s also important to dig a little deeper and question whether something more sinister could be at work. Whether that be in the form of a severe crash or all-out economic crisis.

Either way, protecting yourself in advance is always a wise option. Because while hindsight can provide many things, it will never be able to get your financial security or savings back.

Vern Gowdie, fellow editor at Markets & Money and long-time believer that the debt-fuelled party is shortly coming to an end, has been writing about wealth protection for decades. He has witnessed financial crashes firsthand, and believes we are entering a period of ‘peak risk’.

Like Jim Rogers, Vern argues that the global financial system will inevitably crack under the weight of all of this debt and greed. And that the crash is going to be worse than anything we’ve ever seen.

His most recent book details how to protect yourself in the event of this financial catastrophe. It’s called The End of Australia. You can learn how to grab a copy of Vern’s book here.

This week in Markets & Money

China’s relationship with the US is a complex one. Although Chinese citizens appreciate Donald Trump’s forthright manner, his ‘America first’ policy is rubbing many the wrong way. And as China is the second biggest buyer of US bonds behind the Fed, a tense relationship could have dire consequences. Which is why, on Monday, Harje outlined the steps investors should take to dodge the fallout.

To find out what they are, click here.

On Tuesday, concerns about America’s relationship with China deepened. Greg noted that although the likelihood of a housing crash occurring in Australia is low, China could quickly change that. If a trade war occurs between the two superpowers, it would almost certainly affect the Aussie economy. But the reasons for the tension aren’t what you’d expect…

To read the full story, click here.

Warren Buffett’s strategy of buying tiny stocks and cashing out huge gains after they skyrocket has inspired many investors. Fund managers in particular have been trying to emulate his technique for years. As Harje noted on Wednesday, investing in the smaller end of the market creates volatility. And for individual investors like you, this can create immense opportunities.

To learn the details, click here.

It’s easy for Australian investors to feel outraged. After all, the Australian market seems to fall flat when compared to the rapid rise the US market has experienced. As Matt noted on Thursday, the success of the US market can be attributed to its best-performing stocks. Commonwealth Bank has nothing on Apple when it comes to growing the stock price. But there is a downside. If the value of these stocks drop, the US is vulnerable to some devastating consequences…

To learn more, click here.

Humans, markets and industries exist in a constant state of flux. We are always adapting and trying to improve. And while we are sometimes successful, often these disruptions cause more harm than good. As Vern wrote on Friday, the changes that are about to hit the investment industry are far from productive. When investment services start offering products for free, you can bet there’s something fishy going on…

To read the full story, click here.

Until next week,

Katie Johnson,
Editor, Markets & Money

Katherine Johnson, usually going by just ‘Katie’, is a member of Port Phillip Publishing’s editorial team, as well as the Editor of the Saturday edition of Markets & Money. Katie works with all of your editors to maintain the quality of their research and analysis. In her Saturday Markets & Money articles she specialises in cryptocurrency and technology stories, and brings you a recap of the week from your other Markets and Money editors.

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