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So there's been a massive market crash. Total disaster. Economic carnage. We'll be lucky if the general population makes it through the night in one piece. Is this actually accurate? Hypothesis 1: the British stock market has crashed This is the FTSE index of the top British companies (not that the share price of the top British companies helps me or 99% of the public in any way! But let's just ignore that argument): You can see the quite dramatic losses, which were genuinely dramatic although entirely predictable, because markets are completely irrational casinos and bear no resemblance to anything rational or objective. All those losses have nearly been recouped already. But it goes further than that. This is the FTSE over the last month: I've put a black line in this image just before 17th June. That's the point where it looked likely that remain would happen, and the market went up massively. That's because traders hate uncertainty, because they are essentially betting! All that happened when the FTSE went down is that the increase in the market was eliminated. Even at its lowest point, the FTSE was still higher than on 16th June; now it is significantly higher. I'll come back to the FTSE later. Hypothesis 2: the pound has crashed Let's look at the pound. Sterling did take quite a significant hit. Again, it's arguable how much difference this makes to the average person until they go abroad. However, the extent of this decline was greatly exaggerated, and the media (as usual) failed to put it in any meaningful context. Here is the performance of sterling against the dollar over the last roughly 9 years: You can see that when the global financial markets nearly collapsed in 2008 (of course, nothing has improved since then, in fact the situation is worse now) the pound was absolutely hammered down to the level that it's at now, and even below that. And although this happened over a longer time period, it was a far bigger fall, from about $2.05 to just over $1.30. Since then: Sterling has traded somewhere between $1.35 and $1.70, but for the majority of that time closer to the bottom of that range than the top. This has been quite consistent over a 7-year period. I know about this because I get paid in dollars from some of my clients, so I follow this market very closely. The exchange rate has been around $1.40-1.45 for several months now. Again, the pound only started to go up when it looked likely that remain would happen, reaching around $1.50; still historically much lower than it had been in the past. I think it is true that Brexit led to the biggest single-day fall in the history of sterling, but a lot of that is just wiping out false gains from the previous week, which were based on duff information. Hypothesis 3: global stock markets have crashed I'm going to make this one as simple as possible. Here is the NASDAQ over the last four years: It has doubled in price in just four years. Here is the Japanese Nikkei Index: Same story. Here is the German DAX stock index: Not quite such a strong pattern with the FTSE over the same period, although it has gone up, but here is the performance of the FTSE since the City of London was deregulated around 30 years ago: All of these stock markets are in massive bubbles, caused by unnaturally low interest rates for the best part of a decade. It's taught in mainstream economics that interest rates and the bond market have an inverse relationship; if one goes up, the other goes down. The situation with stocks is more complicated, but the following is generally acknowledged: If interest rates go up, all else being equal, stock prices will go down — because some investors will choose to move their money from stocks to bonds, given that bond yields have become more attractive than they used to be. (And this reduced demand for stocks will cause stock prices to decline.) And conversely, if interest rates go down, all else being equal, stock prices will go up — because some investors will choose to sell their (now lower-yielding) bonds in order to move to stocks. So this is what has been happening for several years now, and that's why we've seen major stock indexes all going upwards almost without exception. All of these markets are in a massive, unsustainable bubble anyway, and sooner or later there will have to be a correction. Sooner or later, interests rates will have to go up, this is being desperately delayed as massive amounts of unchecked credit is the only thing keeping the system going, but when they do go up, God knows when that will be, the stock market will go down. That is guaranteed, as far as I can see. And just to briefly touch on this...low interest rates only benefit speculators and borrowers. Such an environment creates an extremely unhealthy two-tier culture. The fact is that the stock market going down makes virtually no difference to the average person. Some investors will lose money, such is the risk of investing in stocks and shares. Hypothesis 4: the housing market will crash Good! Bring it on! Arguably people with mortgages benefit from a low interest rate environment, but on a deeper level it just encourages people to invest unwisely in housing to 'get on the housing ladder', and leaves the British housing stock extremely vulnerable to foreign investors. This is particularly true of London, where it is almost impossible for anyone under the age of 35 to buy a house if they don't already own one, unless they are given money by their parents. There was actually a story recently which pointed out that if the so-called 'Bank of Mum and Dad' were a mortgage lender, it would be in the top ten in the UK. That is what we have become reliant on. And it's no surprise, particularly in London. (BTW that image only goes up to 2015, house prices have increased further still this year). Wouldn't you say that house prices are due some form of correction? Don't you think it would be a healthier situation if we didn't view houses as investments, but instead as places for people to live? Regardless of whether you agree with this or not, the fact is that house prices cannot go much higher without dropping a little again, as it's becoming impossible for people to get on the bottom rung of the so-called ladder. The only thing keeping the market going now is foreign investment. For example, I live in a flat owned by someone who lives in South Africa, who has never been to the UK! That is perfectly normal now. For the average Briton, a fall in house prices would undoubtedly be a good thing. Investors I have no sympathy for, those relying on equity release to fund their extortionate lifestyles, tough luck, those in negative equity I do feel sorry for, but inevitably housing will rise in value again, as it did after the last crash. So just to summarise: Hypothesis 1: the British stock market has crashed Reality: The British stock market has been in a massive bubble. It's still in a massive bubble, and has almost returned to its peak level. Hypothesis 2: the pound has crashed Reality: The pound has fallen significantly, but has fallen far more in the recent past. The level it is trading at now is only very slightly less than it was trading at just a couple of weeks ago, and all that has been wiped out are gains made when investors thought Britain would vote to remain in the EU. Hypothesis 3: global stock markets have crashed Reality: Global stock markets have been in a massive bubble, largely caused by unnaturally low interest rates, which has helped create a climate of speculation. Global stock markets have fallen somewhat. They are still in a massive bubble. The average person in the street is completely unaffected by this, unless there is a total collapse, which will not be caused by Britain leaving the EU, but by much deeper and more profound systemic problems and corruption. Hypothesis 4: the housing market will crash Reality: Housing is already in a massive bubble, overpriced, and will fall in price in due course regardless of the EU. Although there will be some losers among the general public if this happens, overwhelmingly it will be a positive thing for the society in general, and particularly for the younger generation. Don't hold your breath waiting for the media to tell you any of these things. I'm not an expert on economics, I just did a bit of research to see whether the climate of fear being created by the media is justified. In conclusion...I don't think that it is.
Last month, I posted a video about black Wednesday on a thread. I can't remember which one so I'll repost here: I'm too lazy to explain what black Wednesday was, so this excerpt from wikipedia will have to do. What I worry about is the possibility of another black Wednesday type event (does not necessarily have to be on Wednesday). There are several reasons that I believe this could happen, many of which the members of this forum know quite well, starting with an obvious giant housing bubble, but also including Very low interest rates Brexit fears Trade imbalances Unemployment, high cost of welfare, other high costs George Osborne's failed attempt to significantly decrease the debt/deficit I'm not going to go into detail of the above, there are plenty of threads about these subjects. Given the similarities between where we find ourselves now, and the last black Wednesday, I am willing to take the leap that if another one does occur, the government will try to use the same thing to shore up the pound. First, the government will Attempt to reassure everyone that everything is ok, which will fail as everyone will now panic Buy back pounds by using the nations foreign currency reserves (and maybe gold), this will also fail Raise interest rates brutally, which may or may not work, and lastly Now you may think at that this is good, as we can see full HPC as well as good saving rates at the bank, enabling us to finally own our own homes but, the government may use the last trick in their arsenal to prevent the pound from plummeting DEVALUATIONWhat I wanted to focus for the rest of this thread is, how do we best protect ourselves from all of the above? I have some half cooked ideas but they need some scrutiny. Changing pounds to another currency which is deemed safer Buying precious metals Savings accounts Buying stocks or assets (not housing assets) None of the above are perfect ideas. Changing pounds to another currency will cost some money if you use the post office, so there will be some loss there. I found an online service called transferwise, which is an international money transfer system, created by the same people as PayPal, that works like the bank but with way better rates than conventional currency exchanges. For example, as I wrote this post, the exchange rate from the GBP to the USD was 1: 1.415. Tranferwise gives you 1: 1.4084. I did a calculation and this works out to be 0.99533% efficient. The problem is, this service is a money transfer service, which means you need a bank account at the other end if you are going to transfer to yourself. In this case I would need a bank account in USD if I wanted to change pounds to dollars with this method. Another method, which is 100% efficient without fee's or charges, but probably a pain in the **** to use, is oxchange. A peer to peer exchange, where you log in with your facebook, and place an order to buy another currency for a certain amount, and the program matches you with someone who wants to sell their currency for the amount proposed. I see this working in London with tech savy tourists in a startbucks. This won't be very good up in the sticks though. However, changing pounds to another currency wont protect the value of that currency in the long term, as all fiat devaluates over time (unless there is deflation). Which brings me to the next option. Buying precious metals. This has been discussed to death, there is a mega thread pinned at the top of the forum. Gold has historically been used as money. The government can't print gold so it can be a useful tool to store value, except its very very expensive, doesn't yield dividends and gold sellers sell at slightly over spot. Another thing against gold, is that it's price fluctuates like it's a roller coaster. If we head down towards a black Wednesday, gold inventories aimed towards small investors will run dry pretty quick. If I wanted to buy a small gold coin, which is the best service available? Silver, is much cheaper than gold, and by some accounts is way under valued. Unfortunately silver is taxed with VAT. I've seen some websites, and just looking at the tax puts me off buying. However, after a bit of digging, I found that Estonia does not place VAT on silver, which allows one to buy silver at just slightly over spot. PROBLEM is, you have to get the silver from Estonia, meaning you loose out on shipping. So maybe metals are not the way to go. Savings accounts are not a good option with very low IR. Also, if the government devaluates the currency, it will do so by far more than the best HTB ISA. (4%) Buying stocks or assets could be an option, provided they are very good quality stocks which pay dividends, this may be a way to make extra money. Trouble is finding those stocks, whilst massive QE and low IR has pushed almost all of them up into the stratosphere AND George Osborne, not one to miss a trick, has implemented a new tax on dividends, the son of a bitch. So I'm out of ideas, and very tired, have to sleep. Thoughts?