MBMG International Ltd.
Nominated for the Lorenzo Natali Prize
It’s the end of the world as we know it ... and I feel fine
My business partner Paul Gambles, who is a guest speaker on CNBC, has been
told on many occasions that his demeanour is much too upbeat for someone
with such a negative view when referring to the global economy and global
The likes of Marc Faber or Nouriel Roubini deliver their doom-laden
pronouncements with much more severe, resonant gravitas that they apparently
fit this role much better. Paul is quite happy for them to be seen as
doom-mongering economic undertakers for, despite having co-authored such
cheery little works as “The Four Horsemen of The Economic Apocalypse” and
“Broken China is Turning Japanese”, he sees his role as quite different to
theirs. Dr. Roubini, in particular, has the sobering job of trying to change
the hearts and minds (such as they are) of politicians and central bankers
and get them to do the right thing. Whereas Paul and I simply have to
observe that they are palpably not doing this and look how to turn that into
an advantageous position that our clients may be able to benefit from.
If it does seem we are more positive now than we have been for a long time
then it is because we are more optimistic for the long term. The short term
is still a very rocky road. However, it is a fact that markets have tended
to rise and to fall, to boom and to bust. If we could not see where the next
bubble was coming and what the next collapse would be, we would be extremely
worried and probably would sound more like Messrs. Faber and Roubini.
Investors have to make sure they can see what is coming and how to handle
it. They need to be able to know how to avoid the pitfalls and how to
exploit them, i.e., how to carry on making money from these situations.
Without doubt, there will be pain and a lot more than even more than the
most bears think.
As stated recently in the Nation, by the excellent Pichaya Changsorn,
despite the rocky road there are opportunities that await investors. Another
Great Depression is indeed coming but the world and the global economy will
survive intact and will start to grow again and with the right measures so
will your portfolio.
There will be victims and we should all do what we can to support the less
fortunate but one of the most helpful things that anyone can do is to
position themselves among the more fortunate. Fortunes can be lost in
economic dislocations such as that which currently has endured since 2007
but fortunes can be protected too and opportunities can be seized. Wealth
advice is easier at some times than others but there always comes around the
times that separate the men from the boys. Make sure that you are ready for
the next Great Depression because failure to do so could be either the most
expensive mistake that you will ever make or the greatest missed
opportunity…until the next one comes around!
Some of the key points:
“Our best case is that stocks will fall 30-40 percent from where we are now.
The worst is hard to predict, but during the Great Depression in 1930s, US
stocks dropped by over 90 percent. Unless you are prepared to lose 40
percent of your assets, which you might not ever be able to recover, you
should completely avoid equity exposure right now.”
It is not possible to predict the exact time of the global economic
collapse, as it would depend on what financial event triggers it which would
very probably be a political decision.
Nonetheless Nouriel Roubini or ‘Dr Doom’ believes that 2014 is the maximum
point we can get to without some event triggering a major crash.
“The four horsemen” comprising the United States, the United Kingdom, Japan
and the euro zone are getting close to the “apocalypse” or “the [economic]
end of the world”. Governments are repeating the mistakes they made in the
1920s that led to the first Great Depression, such as accumulating huge
public debt, distributing wealth poorly, and tolerating low productivity.
“China is now exactly in the same situation.”
No c entral banks would be able to stop a recurrence of the Depression.
To protect their wealth from the expected economic crash, investors with
medium-term risk profiles and medium-term time horizons (five years or more)
should allocate half of their portfolios in cash, 20-25 percent of in gold,
10-15 percent in government bonds, 10 percent in selected types of hedge
funds such as long-short equity and managed-future funds, and about 5
percent in “tactical investments” such as “shorting” Australian property.
“One of the best opportunities to make money right now is to exploit the
most overvalued asset in the world, Australian property. Some of our
managers are just now starting to ‘short’ Australian property. In real
terms, it must fall by 60-70 percent.”
Investors at any risk profile should now overweight on cash, which currently
can offer an expected annual return of 3-4 percent for Yen and Singapore
dollars, and 6-7 percent for Baht, and US dollars.
After the expected financial crisis, gold is predicted to rise to
US$2,500-$3,000 an ounce, from about $1,600 at present. This may be too much
but there is little doubt it will get to $1,900 without too much difficulty.
When the crisis starts, the US dollar is expected to shoot up to Bt35-Bt36,
though the long-term trend is for the greenback to fall to Bt25 eventually.
Asia would not be immune to the coming global economic collapse, though some
economies with low debt levels will bounce back faster.
Thailand is still in a good position, and it would be better for the country
if the global depression occurred now rather than later, as the Kingdom is
piling up debt and weakening its economy.
The US presidential election or the political handover in China could be the
catalyst for the next global crisis, but as evidence throughout history
shows, it is usually not the big-headlines event or the expected thing that
triggers a major crisis.
The above data and
research was compiled from sources believed to be reliable.
However, neither MBMG International Ltd nor its officers can
accept any liability for any errors or omissions in the above
article nor bear any responsibility for any losses achieved as a
result of any actions taken or not taken as a consequence of
reading the above article. For more information please contact
Graham Macdonald on [email protected]