There has been A LOT that has happened over the last few months and weeks! Let’s take a look at the economy and not an emergency. At least that what we’ve been told?
Today, I want to share with you a few charts to help you see and decide for yourself whether there is a problem indeed!
Back in the early 2000’s I had received my MBA and went on thinking that my education was over. Right after that, I jumped head first into the world of investing that led me to my first, real-world case scenario of what happens when the market turns.
This wasn’t a case scenario I was used to or taught in school, where things happen to fictional characters and you play pretend what you would do.
This was my life, my hard-earned money, and an eye opening event that made me realize that my MBA did not teach me a darn thing about how to survive the market crash.
2008 Proved To Be Very Expensive
Yes, indeed! To me and to the millions of people around the world.
Central bank, The Fed, decided to provide us all with QE – an emergency funding and injecting liquidity into the markets and pockets of big businesses. When the first one rolled out, not much happened, so they kept repeating the process until it appeared safe to stop and start pulling back.
But, I’m getting ahead of myself!
Back in 2008 all of the TV pundits were staying roughly the same things they are now:
“It’s a minor correction! Do not worry! Stay in! Ride it out! It will blow over!”
Blow over it did. And with it, it blew away all of my money.
But the event turned out to be a greatest blessing in my life! Albeit, incredibly expensive one.
I had realized that I was not an investor and I had no clue what I was doing.
This sent me out to start educating myself and my real-world education of how the system worked and above all how to protect my wealth began.
I started to learned how to read charts, evaluate companies, see the patterns, learn methods of crowd control (they call it “management”, I call it “manipulation”)… but above all, how to think for myself.
All that thinking led me to switch out of the paper assets and exit Wall St. Casino and go on my own.
I Failed To Think For Myself
Don’t repeat my mistakes!
Prior to starting to learn how the whole system worked, I bought securities because someone on TV said “buy”. I didn’t know what I was doing and I was hoping that someone else did.
The might have?! But it didn’t help me.
My fancy MBA did not teach me anything about personal finance or investing for my future. And if they did, I must have missed a class that day (for the record, I only missed one class during my entire college career and that was first semester my first year in undergrad, so maybe they taught it then!).
I learned that many of the people who say “buy” did it not because of their best interest for me. But for their bottom line.
I failed to do proper research and understand who is selling what and WHY would they say one thing versus another.
It is no secret that I invest now predominantly in one asset class: physical real estate. It is also no secret that I sell financial education!
There, that is my motivation! Now you know what’s in it for me.
And frankly, whether you obtain that financial education from me or from another person or company, I really don’t care! Just make sure they are honest, transparent, and above all that they are product of their product… meaning they are doing what they tell you to do! And finally, whether you decide to follow me or sign up for my courses or engage me as a consultant, make sure that you do not blindly take my (or anyone else’s) words without thinking for yourself.
My education business is a passion project only! My income is predominately derived out of my investments, followed by being paid by big businesses to help them figure out and fix their money problems.
Now, that we have that figure out, let’s jump into what’s happening today!
This Time Is Different
There is an excellent book you should read by the same name: “This Time Is Different”. It’s a bit of a beast, but it’s well worth reading if you decide you want to start educating yourself on the whole debt and credit matter.
Even though the words we are told today ring remarkably similar to that of the previous downturns, panics, corrections, recessions, depressions, etc. we all for whatever reason believe that this time is different.
I have found a few charts from different sources online that I want to share here with you today, so that you can see it for yourself and decide whether it truly is different!
Are you ready?
Okay, here we go…
Chart 1 – Fed Asset Repurchase
In the chart below, you will see of what has happened with the asset repurchase over the last 20 years or so. You’ll see that there was some happening prior to 2008 crash and then it spiked.
You will also notice that it stopped after about 18 months or so and completely disappeared.
Then, in late 2019, you will see another spike that is about twice as big!
But they tell us, it’s no big deal and everything is fine.
Looking at the chart, do you feel like everything is fine?!
I don’t! I see that something BIG happened.
Do you remember hearing about “the repo market”?
We don’t hear as much about it today because we are all focused on COVID-19 and the recent stock market yo-yo (I’ll come to that in a moment).
The spike you see is the injection of cash into that market that is suppose to be highly liquid, but the liquidity dried up… very similar to what happened in 2008, just a different market origination.
Chart 2 – Fed Balance Sheet
In Chart 2, take a look at what’s been happening with the monthly balance sheet.
You will see how first QE spiked up, followed by the two other financial injections of money (sometimes called fiscal stimulus): QE2 and QE3.
Then you’ll notice how the line starts slowly going down and then turns into negative territory.
The negative part is the time when Fed decided that not only would they stop buying stuff, but as the stuff they bought would come to maturity, they would stop turning money over into other securities, thus reducing the amount of money available in the system. Many have called this QT (quantitative tightening) which is opposite from QE.
During that time, they also did something else, which you can’t see on the chart, but you can easily fact check online by searching, they started increasing interest rates, which increases the cost of money, thus reducing the amount of money we all create by borrowing.
This last sentence may be a bit confusing for some… yes, we create money out of thin air when we borrow. Every dollar, euro, yen and any other fiat currency is borrowed into existence making “paying off your debt” or “eliminating debt” an oxymoron, yet we all use it (heck, I use it in my courses but only because I don’t know how else to call it or how else I’d explain what’s happening to others).
Then you’ll see a HUGE jump in last part of 2019 and early 2020.
This was that injection I shared with you earlier that was suppose to be a one time only for a week, then it turned into a month, then it got expanded over the holiday season to keep things afloat, and then it turned into an ongoing thing, still happening.
That’s not normal!
Chart 2 – Not QE and Not An Emergency
This is my favorite chart and I think I saw it on something that Mike Maloney of GoldSilver has done.
In this chart you’ll see a balance sheet sort of chugging along, then a rather steep drop, followed by the spike.
When this was released the news were saying “this is not an emergency. everything is fine. don’t worry”
But it’s sort of weird to me to see big movements like this.
This is called pattern shift!
You can clearly see from the chart above how something changed and it was BIG.
Developments Over The Last 2 Weeks
It’s March 7, 2020 that I am writing this and over the last 2 weeks there have been many developments.
COVID-19, also known as coronoavirus news started spreading nearly as quickly as the illness itself. I am not a health expert so I can’t talk about what virus can or cannot do and I have no clue what is true as I don’t really trust what’s being said on the TV or most of the media.
But what I do know is that the markets started unraveling.
Last weekend USA Today posted front page news article that DJIA dropped nearly 1200 points. This caused me to take a look.
Soon after Robinhood app crashed rendering everyone incapable of trading, whether you wanted to buy or sell, you couldn’t. Who knows how much money was lost that day by people just like you and I?!
This is called Counter Party Risk. Or is at least a portion of it.
Curious as to what assets don’t have counter party risk?
The Fed Cut Rates By 50 Basis Points
Half a percent doesn’t seem that big to most of us because when we see a sale we are used to seeing things like 30% or 70% clearance, etc.
But in the world of economy 0.5% IS HUGE!
Rate cuts like this are reserved when we are deeply in trouble… akin to defibrillators meant to bring a human back to life.
Markets sort of went up for a brief moment and we are right back down.
What Does It Mean?
The price of the market today has effectively wiped out all of the earnings over the past 5 months or so and given that we are well above 10% down, we can call this a correction officially.
Is is a recession?! Or could it be?
Well only time will tell.
In order to call it a recession we have to be in downturn for 2 consecutive quarters (6 months) and have to hit a downturn of about 20% or so (plus some other markers).
The only way that they can call it recession is by looking at the past.
However, for you and I, we’ve already lost a lot over that time period, so waiting until they call it is a bit too late!
For now, they keep repeating the same mantra:
“Everything is fine. This is not an emergency. Do not worry. Leave your money in the market. It will blow over…”
And technically speaking they are right. Things will blow over eventually. Just make sure they don’t blow your wealth away like they did mine in the last “Everything is fine” case scenario back in 2008.
The truth is that NONE OF US KNOW for certain what will happen next. And anyone who claims they know for sure is either lying or a complete idiot.
Some of us have an idea or predictability and projection models of what we think a more likely scenario is and we all place our bets accordingly (creating a buy or sell order in paper asset marketplace is called a bet, YUP, just like a casino) and only time will tell whether we were right or wrong.
Many of the folks who have an idea have decided to abandon going long (meaning betting on the positive turnout for at least time being). They are shorting the stuff, betting on volatility and entering bond market which has been in a clear positive trend over the past few months.
The sad truth is that most “investors” (I think a better word is speculators) are in the market inside the retirement accounts and they are limited as to what they can do.
Retirement accounts predominantly give you access to mutual funds (problem #1) which only bet on market going up (problem #2). So even if you wanted to short or play volatility, you can’t! They say “it’s risky” and they do it “to protect you”, but I personally think it’s risky they don’t teach us how to invest and allow us to only play one-sided game.
The best that you can do inside your retirement account is to switch over to bonds or get into money market (which with repo being so troublesome now, I don’t know how much trust I have in any “money market” at all).
You can of course exit the account completely. But then you’ll have to pay taxes and penalties, if you are not of certain age.
Talk about being placed in lose-lose-lose situation!!!
Those that have self-directed IRAs have a bit more options available to them. Sadly vast majority of people don’t have that.
Final Truth And Conclusion
And while those in retirement accounts are losing money hand over fist, there are those making it. Those that have no clue what’s happening are holding on watching their money evaporate. Meanwhile, the intelligent investors are either outside of the paper asset market completely or have changed their strategy. They sold prior holdings, making RIDICULOUS amounts of money in the short term.
Those that have purchased a handful of great bets have experienced returns of 75-250% in just a few short days. There are those who have turned their $250,000 into $500,000 or more! At the same time, those without education have lost well over 15% (maybe even more).
There is a saying I’ve heard a long time ago.
“Money flow is interesting… it freely flows from those that have to those that know.”
My question to you is, which side of the camp you’d like to be on?
Most people want to have, but they don’t know how to keep. So they focus on making it without understanding how to keep it.
To be financially independent, you must learn the art and science of both.
As I always tell people: “If you think education is expensive, try ignorance.”
That is the final and obvious truth that most of us are not even talking about.
Until next time, stay forever Money Blessed and remember, You Are ONLY 1 Deal Away.