What has been is what will be, and what has been done is what will be done, and there is nothing new under the sun. This is taken from Ecclesiastes 1:4-11.
Many investors will be watching the world stock-markets tumbling and fearing for their financial future. This is a natural and understandable reaction. Look, however, at the graph below and you will see that this violent correction, if it is going to continue as such, is becoming a regular occurrence. As Saltydog subscribers however, I hope you have followed the “Tugboat” portfolio risk pie-chart and are actually sitting comfortably, with the majority of your portfolio invested in cash and the slow property funds. This, provided the property funds continue to perform as they have over the last eighteen months, would seem to be as safe a place as any at the moment.
The big question is, will this correction take the FTSE 100 back down to the 4000 level over the next couple of years as the previous corrections did? There would seem to be a number of reasons to suggest that this could be the case.
- China`s economy has hit a brick wall and its currency has recently been devalued. Its housing market is also undergoing a rapid devaluation and all of this affects the wealth of its citizens.
- The Emerging markets of the developing world cling to the coat-tails of China and will fall in tandem.
- Commodity prices, which rely to a large extent on the health of the Chinese economy, have understandably collapsed. This has a knock-on effect on the wealth of the commodity producing countries. (Australia, Brazil and Canada to name three).
- The oil price is the purest barometer of world growth as it is the fuel that drives most of the world`s industry and production. Brent Crude, the global bench-mark, has fallen in the past two years from 120 dollars a barrel to close to 44 dollars a barrel.
- Central Banks will struggle to control the value of their individual currencies as they lift the interest rates at which they are prepared to lend to each other.
- The European Union is under considerable stress, even after it has kicked the Greek can down the road yet again. There is no real sign that there is an economical solution to the trials of the Euro.
- The UK stock market is in its 77th month of a bull market. There is only one other occasion in history that the market has risen for longer, and that was in the lead up to the Great Crash in 1929.
- Finally, both the UK and the USA stock markets are greatly over-valued, probably as a result of the Quantitive Easing that has been taking place and the low interest rates in the domestic markets. Both of which are changing as Q.E. ceases and interest rates rise.
There is not much to like in the above, and you would think that a correction is well overdue. The question is only how large and only time will reveal that?
Jesse Livermore said “The public ought always to keep in mind the elements of stock trading. When a market is going up no explanation is needed as to why it is going up. It takes continuous buying to make a market keep on going up. As long as it does so, it is a pretty safe proposition to trail along with it. But if after a long and steady rise a market turns and gradually begins to go down , with only occasionally small rallies, it is obvious that the line of least resistance has changed from upward to downward. Such being the case why should one ask for explanations.”
I have just read an article about how the financial elite are planning to solve the global debt problem by stealing our wealth through inflation. It was written by Jim Rickards and published by Strategic Intelligence.
Normally I take these newsletter articles of gloom and Armageddon with a bucket of salt, but this one seems a little different and talks about SDRs. What on earth are SDRs? Well apparently it is the world money that is issued by the International Monetary Fund (IMF). This world money is called the Special Drawing Right, or SDR.
The Bank of England can print Pounds, the Federal Reserve can print Dollars, the European Central Bank can print Euros, and the IMF can print SDRs. It is that simple. It is all Quantative Easing (Q.E.), except that it is not. The main difference is that we keep our own currencies in our own national and individual bank accounts. Not so with SDRs, they are for countries only and can be swapped for any other country`s currency using a secret trading facility inside the IMF in Washington. So there is the potential for printing huge inflation by swapping these SDRs. If and when the IMF floods the world with these SDRs you will not have the opportunity to blame any national bank like the Bank of England or the Federal Reserve. We will only know it is happening when we see our savings being eroded by inflation.
The timing for all of this to kick-off appears to be the end of September 2016. Right now, the value of one SDR is determined by reference to the Dollar, Euro, Yen and Sterling under a mathematical formula. China is presently negotiating to have the Yuan included in this basket of currencies. Jim Rickards puts a lot of the present unrest in currencies and the uncertainty of interest rates increase timings down to the manoeuvring between America and China.
The most important thing for investors to understand is that China does not want to rock the boat; it wants to join the club. Specifically, this means the IMF`s special club for SDR members. The future world reserve currency is not going to be the dollar or the Yuan. It is going to be the SDR! What does this means for the value of gold? I cannot imagine that it is going to be used to support the SDR, so at that point its value becomes that which is demanded by the jewellery manufacturing industry, which is less than its value today.
I started this article by saying that I am confused and I am still confused. SDRs are however something that I intend to learn more about. If there is any truth in the direction that Jim Rickards reckons that the financial world is going, then I can see more and more reason to be active with my investments and the passive investor had better watch out!
The best time to plant a tree was twenty years ago but if you have failed to do that, then the next best time is probably now. This is a useful investment maxim to remember when markets are volatile and unpredictable. I believe that although it has its origins in Africa it is probably very relevant to the India of today.
In January of this year I wrote an article on the subject of investing in India. At that time I said that the Neptune India and Jupiter India funds had risen in value during the previous ten months by 50% and that this rise would be likely to continue. It did, and by April 2015 they had risen by another 40%, up 90% in total. Then came a correction, possibly connected to the calamitous fall in the Chinese stock markets. By July 2015 both funds had fallen by 30% only to rise again by 20% and be back today within 15% of the previous high. So the big question is, will the Indian markets continue to prosper, and is now the time to jump back in? I had finally exited both funds by June this year after making my original investment in October 2014.
Recently nothing much has changed. Prime Minister Narendra Modi`s investment friendly policy keeps India on a buoyant path of recovery. The sweeping changes to archaic labour laws and the breaking down of the restrictive land development laws will continue to create many hundreds of thousands of new jobs thus lifting the country`s tax revenues. Christine Lagarde, the International Monetary Fund`s managing director, told students in New Delhi that “In this cloudy global horizon, India is a bright spot”. The world needs a strengthening India to counterbalance the weaknesses in the West and emerging China.
To me, this Indian economy would seem to be progressing nicely and I have reinvested. It is worth noting however that Mr Modi is far from liked by a large percentage of the Indian population who see him acting for the rich, leaving the poor to take the crumbs that fall from their table. So unless he is able to make noticeable improvements to the living standards of the poorer parts of Indian society we can expect there to be some unrest. This unrest is starting to show already in poster signs and graffiti. The following are a few examples….
- India is a country where the people are thin and the police are fat.
- India is a country whose rich believe in simple thinking and high living.
- India is a wonderful nation where daughters are neither safe in the womb nor outside.
- In India, whether you are interested in politics or not, politics is always interested in you.
- In India, you don`t drive on the left of the road, you drive on what is left of the road.
I guess it is only natural that as Mr Modi and his government push their changes through the Indian parliament it will cause a considerable amount of unrest until the benefits are felt by the majority.
I was at sea on trawlers in 1958 when the Icelandic Cod Wars first got under way. At this time there were many hundreds of British deep sea trawlers fishing around Iceland and the cod catches were prolific. Iceland sported two small warships called Odin and Thor and with these two ships they tried unsuccessfully to manipulate the trawlers to stay outside a four mile restriction zone. Then along came Edward Heath and the entry of the United Kingdom into the European Union.
The restriction zone around Iceland then moved by stages to twelve miles, then fifty miles and settled eventually at two hundred miles thereby completing the extinction of the English deep sea fishing fleet. I remember the time when you could walk across St Andrews dock in Hull from side to side just on the fishing boats. This dock has long since been filled with concrete and Hull no longer has a fishing fleet as is the case with most of the other fishing ports from that era.
The people employed in the industry were working at the sharp end of the business either fishing or converting and distributing the product. Political interference and administration was minimal and certainly not obstructive. How times have change. Recently I was down in Poole and had an opportunity to observe the procedure as it is now.
A fishing skipper now has to fill forms out in quadruplicate every time he goes out. This form requires him to record the type and weight of each type of fish he catches. Which area of the coast he caught them. What time he left port and what time he returned accurate to ten minutes. Obviously which boat and who were the crew members. Plus a lot more minor detail that I cannot now recall. All of this is supposed to be recorded at the time it occurs whilst at sea. This is of course dangerous as the concentration of the crew should be on safety and the actual fishing. So in fact it will be filled in when they have returned to port and the accuracy of the rei did thankport suffers accordingly.
Never fear, this is the time for the jobsworths of the Fishing Protection and Environment to step in and assist. There are six of these people in the Poole office and there are fifteen such offices around the coast of England. These people observe the comings and goings of the tiny number of boats that still fish in these waters and they will go through the quadruplicated reports and demand corrections. These reports are then sent on to the office in Hastings which collates the South coast reports before sending them onto the head office in Newcastle for recording. There resides a team of fourteen well paid Board members at this head office. All of this is to comply with European Union rules and it is being done at a time when the English fishing fleet is now virtually non-existent. The French and Spanish fleets operate under these same rules but when asked to comply with the filling out of these forms their answer is to block the ports until the officials and the problem goes away.
Now to the really farcical point of the situation; the number of boats going out fishing is falling year on year as the remaining fishing men retire. They are not being replaced by younger skippers because these men cannot find commercial banks to fund new start- up businesses. There are more fish and crustaceans in our seas than there have ever been and the remaining few older skippers are very happy individuals, but they want to, and will retire. Is this final retraction of our fishing fleet going to lead to a reduction of the staff in our Fishery Protection offices? I cannot imagine this happening, can you?
The real frightening thought is that this situation must be multiplied up into every area where the European Union`s sticky fingers are involved. Perhaps George Osborne’s demand for a 40% reduction in budgets might not be so far out of court!