The Next Financial Tsunami – 2012-2018

If you have remembered 2008-2009, that may be the worst financial year we have ever faced since Singapore became independent in 1965. With the credit crisis in US then unveiling its dark closet, the Dow Jones Industrial fell approximately 54% from its high of 14,164 in October 2007 to finally hit bottom on March 9 at 6,440. The truth is – the Final Impact of that tsunami is yet to hit us and it’s on its way now.

Now in 2012, major economies like the US and Europe are slowing. Retail sales in US and Europe are running at their lowest pace in five months, and US and Europe corporations ended 2011 with their slowest profit growth in two years. 2011 was the worst year for new home sales in the US since 1963 and housing prices are set to fall again in 2012. Yet, people are lured back to the stock market, thinking that things will be fine and controlled as portrayed in the main media. When this final wave of tsunami come, even Singapore may have to retest its Straits Times Index low of 1513 in Mar 2009.

Backdrop of US

With the US budget deficit at US$ 1.3 trillion, the official US national debt exceeds US$15 trillion. President Obama just got approval to increase the US debt to US$16.4 trillion in 2012. With all these in mind, the US unofficial national debt could be close to US$100 Trillion if we take into account unfunded liabilities and entitlements in US. If US is running like a corporation today, it is already technically Bankrupt. US as a leading economy and empire, is history.

Backdrop of Europe

When Greece announced to the world that they are in trouble of defaulting their national debt, the euro zone leaders said that they would bail out Greece in 27 October 2011. However, by 20 February 2012, the Euro zone finance ministers agreed to a second bailout for Greece. Greece has technically already defaulted on its debt, with Spain and Italy not far behind. Having said that, Germany is the only real foundation of the European economy. Will Germany get tired of bailing out its poorer and mismanaged European counter-party one day and each country just go back to its own currency? If that happens, Euro will die and so do the weaker European countries like Greece, Spain Italy and Portugal.

Current Scenario

Have you heard of the Great Depression? If not, quoting from Wikipedia, “The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s. It was the longest, most widespread, and deepest depression of the 20th century.” Why am I mentioning about the Great Depression? Do you know that there is a great similarity between the years 1934-1937 and 2009-2011?

Let us re-examine these two scenarios

The stock market crash in 2008 is similar to the crash in 1929 crash which eventually led to the great depression. After the crash in 1929, there is a bear market rally that started in 1934 which lasted until 1937 and it took the Dow Jones from a level of 90 to 185, a positive gain of 106%. The Dow Jones then collapsed and did not recover till seven years later, 1944. If you look at this past trend, isn’t the bear market rally from 2009-2011 similar to that of the bear rally back in 1934-1937? I hope I’m wrong but if I’m right, we are heading into some serious financial tsunami that will ultimately bring the current US stock index below March 2009 low (6,440). If this happens, Singapore may also retest its STI low of 1,513 occurred on March 2009.

Gold Investment

With losing faith in currencies and stocks, the only way for gold is to move up. The correction within the year should not be taken as a bear, rather than as a correction. Looking at the situation today, I expect the gold price to hit 3,200 before the gold rally is over in approximately 3-5 years time. It is to be noted that for 11 years, the price of gold has closed each year higher in price than it started the year. I have previously written an article on gold investment back in 2009 and if you will like to have a look, it’s under my Ezine articles

My two cents worth of advice

  1. Ensure that you have enough liquidity to ride out this coming rough financial tsunami which may last several long years from 2012-2018.
  2. Ensure that you have minimum financial liability moving forwards by not borrowing unnecessarily.
  3. Ensure that you have enough insurance coverage to pay off hefty hospital and medical bills when jobs and income are tighten during this period.
  4. Ensure that you stay out of stock market and exit now for any gain that you have made currently. Do not be greedy. However, there are a few categories of stocks that you can hold and make money when the tsunami come..Put on your thinking hat…I shall reveal one in part 6 below.
  5. Ensure that if you hold on to any investment portfolio, they are continuously rebalanced with at least 50% Bonds in Asia.
  6. Ensure that you diversify your investment by buying into gold or gold mining companies as gold price continues to rise.
  7. Ensure that you dispose any US$ or Euro as they will continue to depreciate in value as outline in my discussion above.

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