Investing in the Meltdown, or Melt-Up?

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As I study the markets this morning of March 22nd  – Brussels was under attack from persons unknown, though what we’ve heard so far, it suggests, it is Islamic Fundamentalists, with an axe to grind.

Don’t they realise, that they can’t expect Allah, to provide them with anything… Killing themselves and others in the process helps no-one – except maybe: politicians, security experts, the police, the military, coffin makers and funeral directors – every situation, no matter how gruesome, has its winners and losers. These Islamists have to get off their butts, and produce for the wider community, and in that process get justly rewarded in this life, rather than the next. But, societies keeping over half the population unproductive, by restricting what women can do doesn’t help either.

Unfortunately, as time goes by though, it gets harder. Most of the basic human needs have already been taken care of… Water, Food, Homes, Clothing, have been produced for humanity ever since our ancestors got busy making the agrarian society a viable proposition. The Industrial Society, took care of our transport needs, and the first dark satanic mills, spun us our yarn, and weaved our fabrics making mass produced clothing possible and cost effective.

Increased power coming from oil, allowed us to produce ever more stuff. And the improvements in logistics operations: ships, trains, cars, aeroplanes, allowed us to distribute that stuff all around the world. That’s why so many of our newly emerged adults are finding that their skills to make a coffee, or toast a spicy tea-cake are more in demand, as more things are automated, causing the number and type of job changes to escalate.

Now China has become the manufacturing powerhouse of the planet, and those I-phones, I-Pads, and other high-tech gadgets are clocking up more air-miles as fast as the world’s aircraft can carry them. But even there, the Peoples Republic of China is struggling to keep its 1.4 billion people fully occupied and quiescent.

We are fast moving to a post-industrial society, with the emergence of 3-D printers, Bio-Tech developments, and Artificial Intelligence (A.I.) being built into more and more technology, and QE to infinity won’t change that.

The demand side of the world economy, depends on sufficient income, but if people only get their income from jobs, then it is not looking good. The producers are in the ascendancy, those with more and more technology, will win out, forcing those who are less efficient and their uneconomic competitors out of business. Capital, wins out over Labour in the final analysis. And we live in a capitalist world – at least according to what I’ve read.

But, those who see the changes coming and prepare themselves accordingly, can at least make a fast buck if they take the time to study the markets as I have been doing for the past 30+ years.

Late last year we passed a major inflexion point. Several events converged to make the not too distant future uncertain. Mystic Meg, would have a field day, but we don’t have to rely on mysticism, or astrologists to see the future. All we need to do is observe society.

All western societies are getting older (meaning more of them are in, or saving for, their retirements, and therefore are, or will become net consumers.)
The people retiring, are those with the highest skill levels as a lifetime of skills are removed from the workforce. Skills that were honed and polished over almost 50 years.

Those people born in the 40s, 50s and early 60s, went to school, and trade school, did apprenticeships, engineers were trained because of several industry training bodies, and governments who made training pay – for the individual and the company. Pocket calculators didn’t exist, meaning these people learned to do and practice mental arithmetic, and even more complex maths in their heads. Grammar was drummed into them at an early age, spelling was pulled up at every opportunity as all teachers had to have excellent capabilities, and were rewarded with excellent salaries. The cream of the crop were sent to Grammar schools, and educated for Governmental Departments, Banking and Finance, the Law, Accountancy and other professions. The rest of us did Woodwork, Metalwork, Technical Drawing and learned what it was felt we might need, for the industrial manufacturing world we would enter.

But all that began to change in the 70s, as a new social agenda came through. No longer were we to be segregated into professions and trades people. No longer were we educated to be the best. Now we were being educated to be mass consumers – unthinking, and servile – dumbed down. The population by 1970, had already become 4 billion inhabitants on the planet. By 1985 this was 5 billion. It took just another 15 years to bring that to 6 billion people, and a further 12 years  to make that 7 billion. Demand for Food, Water and Clothing will grow with the population, but the ability to produce, is about to make major steps forward. Driverless cars, even trucks will reduce needs for workers, and lower costs as people perhaps opt not to buy a car, but to call one up as and when they need one. How will this affect the motor-industry when one in every 5 cars is a Google car, or a Tesla fitted with similar technology?

How will the logistics industry adapt when Amazon gets the go ahead to deliver its parcels by drone the last few hundred yards from the local service centre to the home? Who will employ all those unemployed truckers, delivery staff, and vehicle producers as demand is lowered?

Unfortunately, such changes cause major dislocations in employment demand, and those who spot the trends early can invest in the right companies.

So that brings me to the next major market change. Where will the stock markets go – the DOW, and FTSE, the CAC Index, and DAX index, the Hang Seng, or any of the so far minor indices on the bourses of India, Greece, Italy, South Africa, Brasilia or wherever in the world they are? My guess is that we are heading for a 70% fall on most of the major indices.

See this:

WhereTheDOWisHeaded-6000

The blue lines show the major channel over the last 20 years.  The thinner red lines show the minor trends, which give us a clue as to the steps I expect will happen over the next few years as the DOW reverses the trend of the last 7 years. Will it go as low as 6,000 or below?

Well, if we look back to the 1970 recessions and look at the charts there. The DOW  fell to 850, and significantly, Gold rose to match it… a 1:1 relationship existed between Gold and the DOW. But here’s where QE does have a major impact. The money supply of the U.S, has quadrupled since 2008, so…

I wouldn’t be surprised that this time when the DOW collapses, to get a potential 2:1 relationship between Gold and the DOW…Gold 12,000: DOW 6,000? Or DOW $5,000 and Gold $10,000? Though, I long ago suggested we might see $8,500 Gold. Given the amount of QE that has been introduced since 2008, we may see all that currency run to ground.

As Bill Bonner might put it: “Sell Stocks: Buy Gold.”

Of course precious metals of all colours – Silver, Palladium, and Platinum will also receive some of the fleeing capital and even Bitcoins, as my last missive suggested, but when the new economy emerges phoenix like from the ashes, where then to put your capital – if you have any left?

So, when the SHTF moment arrives… will you make money on the way down, and then on the way up?

Anyone who gets to grips with Spread-betting, Options, or reverse ETFs that make money on the way down, or who have deep pockets and even longer arms, to borrow stocks, to sell, and then buy back at the bottom (which is how many other fund managers make their funds money) will do well.

The rest? The Buy and Holders…Those whose main investment money is in their retirement fund – out of their control – they’ll be like lambs to the slaughter. Pension firms with their client’s money invested for the long term, will lose Billions.

BUT… when the tide turns, as it will, it will be the biggest buying opportunity since the 1932 bottom in the stock market, when the DOW had fallen, from its highs in 1929, peaking at 381.17 on September 3, 1929, to July 8, 1932 when it closed at 41.22 almost a 90% fall (89.19%).

Over the coming weeks, I’ll be searching for situations where those who want, can make some serious money and giving you the heads up.

W.

 

 

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