US Financial System R.I.P. 2008
I feel extremely sad and disappointed as I am writing this title because the inevitable has finally arrived. In July – Fannie and Freddie were bailed out by US taxpayers. That was the indication that the mortgage business and real estate market were gone for good and the bailout would only reduce the shocks from the market. In the spent of last 48 hours, the 4th and 5th largest investment banks in the WORLD collapsed. It depends on how you defined it. Lehman and Merrill have been technically insolvent since Bear Stearn blew up in March 2008. One is in bankruptcy filing now. The other disappeared as an unit of Bank of America.
As of this writing, AIG, one of the largest insurance companies in the world could be facing capital shortage and it has been down 70% since last Friday. What’s next? To say AIG in trouble – this phrase is certainly unthinkable. Now, it becomes thinkable.
Well, nobody knows what would happen next. The current investing environment is similar to the one where our grandparents were facing back in the Great Depression Era. Simply put, the folks back then were suffering from the aftermath of excessive credits built during the industrial revolution and roaring 1920s. And the rest is history. Are we going to face similar path? We could be on the way. if the Federal Reserve continue to lower interest rate, maybe to zero, we would be facing a long term deflation. the one has been experienced by the Japanese since 1989. (they havent recovered since when Nikei was trading at 40,000 level)
Forward looking. The only investment class with conviction to buy is GOLD. If you can buy physical GOLD, that would be better. As a result of the current housing and credit bubble burst, central banks and government would continue to print more money to restore investors’ confidence. By doing so, we are devaluing the currencies worldwide. Forget about the 20% return year to year on your portfolio. This is the most difficult time we would be facing since the stagflation period in late 1970s to early 1980s. Again, we just don’t know the outcome and when and where something might happen. It’s better to be safe than sorry. Capital Preservation is the key to survive this current volatile investing environment.
Lets see how the policy makers around the world react to this. When the system is finally broken, this is the time to draw a new resolution.
GOOD LUCK. Be SAFE.
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment