• Financial Doom & Gloom? Recognizing what is now occurring.
• Defensive minded?
• Currency crisis?
Financial Doom & Gloom
Let me start by saying that we are not believers in the financial doom and gloom of the world. To us, there have always been financial crises; there will always be financial crises. The value of each the world’s currencies varies according to different factors and at different times. What is important is to recognize what is occurring in the world now, and how it affects you and your investment strategy; whether you need be aggressive minded, or need be defensive minded.
How the Doom & Gloom Crowd Looks at Investing
The following scenario is written about in various forms. Essentially world class studies have supposedly determined that when a global recession is combined with a financial crisis, the recovery time is quite prolonged. Because this describes the current world situation, a predictable path is now forecast by some. More defaults will occur; there will be sovereign debt crisis because unrestrained governments will continue spending and government debt will exceed 80%, then 120%, then more as a percentage of GNP (witness the EU countries). At these levels of debt, danger signals start flying, ratings downgrades occur, international loans to support currencies are arranged, finally credit default and currency crisis.
The forgoing is a condensed, but an understandable enough scenario. The conclusion is usually to buy gold, or dividend paying stocks, or buy baskets of foreign currency and so on. We have a simple question – if you are sophisticated enough and sufficiently knowledgeable to understand the factors causing specific foreign currencies to rise or fall, and can accurately guess what will happen, why aren’t you teaching Warren Buffet how to invest? The same goes for the other investment choices. If you can start a whole new way of investing and make money by following behind so many experts, the world must have changed. Because up until now, they that follow are usually the losers.
Can We Avoid Pain & Default?
We believe that the world will not recover quickly from the current unsteadiness and we believe that there will be more pain, and more defaults. But essentially, each person in a stable country, with a stable standard of living, has achieved an expectancy of a certain standard of life, and that standard of living has not evaporated because of the current economic malaise. Indeed not. That standard of living is now the new expected norm for that person, in whatever country they be situated, and whatever standard of living they achieved. And that standard of living is what that person now wants as the norm. So the demand for goods and services has not disappeared – not at all. Rather it is a constant desire. It’s just taking a bit of time to assert itself again.
Do you really think something learned can be unlearned? That memory can disappear easily? Do you think that a company that learned to use derivatives will suddenly say “We never learned that?” Companies are really people that use a fiction called a “company” in order to do business and make money. None of the tricks, or the new financial inventions used in this last calamity will disappear. Companies will just understand them better and improve upon them.
So volume of derivatives, volumes of trading, international trade and commerce, wages, prices, etc, etc will all reach prior levels, and exceed them – Just like has happened after every other crisis.
The bottom line of all of this, is ‘the sky is not falling’. You should invest. To not invest will cause you to miss the next big thing, although no-one knows when that will be just yet. But invest wisely. Choose value. Trust assets that are always needed by others as those assets will always have increased value. And don’t run after other people’s ideas who think the world has changed. The world is just evolving. Nothing differently than it has always done.
Well written.