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The Financial End-Game

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There comes a point when the questions concerning investment turn into something else. The world's stock markets are going to crash. That's not at issue. Obviously the question is when? But there is far more to this situation than the timing of a stock-market crash.

I am always saying that I know no more than the next person. I don't have a crystal ball. But I look at what is going on, then I look back at history, and I make what I consider to be an informed assumption as to how things are likely to develop. Maybe we have another year to go before everything implodes. At the moment I think it is a matter of hanging on in there if you dare, but be ready to exit with some speed. And that's as far as I am prepared to go. On the other hand if you are not invested in the stock-market at the moment, maybe now is not the time to get in.

What form will the crash take? I mean, is this just going to be a stock market crash? Answer, highly unlikely. There will be a whole series of problems that will be propelled into the limelight as a result of any crash. Let's list some of the things that can (and almost certainly will) go wrong.
1  Inflation is heading rapidly in our direction, and we are not prepared, and nobody is going to take it seriously until things have gone beyond controllability. I have already in a previous blog listed the rate of inflation in a whole slew of commodities. Those figures are frighteningly large. Even if those figures have not yet filtered through to the consumer market, they will. It may take three to six months for their effect to become obvious, but before this year is out the levels of consumer inflation will likely either be rapidly heading for double figures or already be there.

Conclusion: we will all be feeling poorer. That effect will impact on our standard of living and our ability to take on further debt, and will certainly impact adversely on house prices.

2  Political idiocy is rampant. Couple that with the obvious fact that so many decisions are not taken on their merits but on political preconceptions. This will lead to financial and logistical misallocation of resources which will exacerbate the coming chaos, and hinder solutions. We are witnessing one such political mess right now; the way the corona vaccination programs are being carried out across the EU.

The second political mess that is being pursued is the blatant idiocy of the Biden administration in the US. Unrestrained money printing; the build-up of huge debts which can never be repaid; the fighting of historical bogeymen; the attempted destruction of the capitalist way of life which has benefitted the US so well in the past, and the embracing of an aggressive version of socialism, is all going to lead to the downgrading of the US way of life, and the eventual collapse of the country both politically and socially. I challenge anyone to show me a single socialist governmental system which has been a success. From Zimbabwe to Venezuela, to the USSR, all have failed, and had to be rescued by capitalism. As Mrs Thatcher so famously said: "Socialism is fine until you run out of other people's money". The bottom line here is that you need entrepreneurs to create wealth so that it can be distributed. Maybe the distribution mechanisms could be improved, but that wealth must first be created. None of the countries listed above are currently achieving that first requirement.

I have left out China from that list because it is hardly a socialist country, but could be more adequately described as a far right fascist state. What so many people forget is that far right politics are synonymous with far left politics. Both systems destroy people and stymie motivation, which is essential for survival. You also need intelligent people at the top instead of power hungry control freaks.

Conclusion: The EU is in total disarray and headed for collapse due to bankruptcy, political chaos, and social unrest. The USA is in partial disarray, and looks to be headed for high inflation and a trashed currency, together with increased social unrest. China looks to be headed for high inflation, a banking crisis, a serious slow-down in its international trade, and more and more opprobrium concerning its human rights record, which will ultimately lead to more problems with the trade balance. There is also considerable social unrest in the country.

3  Then there is the problem with money. So many countries are teetering on the edge of bankruptcy. Clearly the current financial system is irretrievably broken. What comes next? A return to gold? Somehow I doubt it. Maybe in another era that will happen, but it won't be the way out of this one unless things change drastically from where we now are. I dont think the world could cope with a reset to sound money. Gold would have to be revalued at somewhere approaching $50,000.

That would bring international trade to its knees. It would cause serious problems for the UK and China. Both are dependent upon international trade, and a return to a gold standard would do incredible damage to world trade. Who would be able to import commodities from Australia? Who would be able to afford to buy half the stuff the world currently buys from China? Food exporting nations would do very well. Everywhere else there would be a massive contraction.

When looking at the balance of power from this particular stand-point it is clear that the USA has the advantage in that it is reasonably resource rich whereas China is dependent upon many raw materials, especially food, as the current climate crises have shown. A country that has to import large quantities of the staple food (rice) is going to be seriously at risk in any confrontation.

4  What all the above usually engenders is the ultimate end-game of any major reset -- a war.

We already have the makings of a phoney war in the South China Sea. At the moment you could call it a Cold War. But this has all the trappings of a situation that could boil over to a Hot War at a moment's notice. I would hate to speculate on how such a situation could develop, but the situation does not look good.

A feasible way out of the mess on the USA home front would be involvement in a war with China. A similar situation exists in China. Whether the matter can be contained as a Cold War is another matter. However, I think if things did escalate the outcome could be appalling for the whole world, and I'm reminded of the Tom Lehrer song about the third world war. If I remember the words, he assumed it would probably be over in an hour and a half.

So, there you have it. Which comes first, the stockmarket crash, a currency reset, social chaos, or a war?

Charming scenario, isn't it?

And how does one cope with any of those scenarios? Or the worse case situation, how does one cope with all of them?

I think the first suggestion is: don't enter into anything new at the moment unless you fancy buying gold. Buying anything else at the moment is asking for trouble, and that includes buying real estate. The only thing I am buying at the moment is crypto tokens, and you need help with that subject.

Let me end by reiterating my standard position on buying real estate. You buy when interest rates are high but falling. You do not under any circumstances buy when rates are low and could be about to rise. That means you should not be buying now.

As interest rates rise, loans become more expensive and so prices fall, and buyers disappear. We are heading that way. It may take anything from three months to a year for the rising tide of inflation to become apparent, but it is baked into the near future.

The time to buy real estate is therefore not as a hedge against inflation, but to buy as inflation starts its downward trend. That's when no-one else will want to buy, and prices will be on the floor. It's happened before, it'll happen again.

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