We are at a situation where whatever we do, it just doesn't feel right. The question asked by many investors is where to invest then? What to invest and what exactly one should do or act on?
Well, if you are the few lucky ones who are debt free and still have lots of extra cash or financial papers or real estate, then congratulation to you. This is not of a survival matter. Whatever you have are more than you need and you can afford more than the rest of the world. You'll have your advisors to tell you what to do. No worries there.
For those who are scrapping by, this is a real bad news as we'll eventually see interest move up in the future. And if you have debt or funds to pay up these debt, time to pay up unless it's one of the fixed rate. Most of us will not have so much funds to pay up our entire loans or mortgages, that's why we took up the loan to begin with!!! Or for selected few, it is taking advantage of the low rates!
So, what do you do if you do not have much cash and lots of real estates? If you can get them out at a good price (ie. still making money or even to the extent of losing some), it might just be a good idea to stay a little more liquid. Do not be greedy and think you can make huge sums of money these days. The idea is to just maintain your capital and not lose your money to devaluation!
Yes, the word is devaluation. One of the reasons why real estate is so popular and sought after in Asia. As soon as inflation creeps up, a lot of funds will move into physical assets like properties and gold so as to keep its value. Gold is already hitting new high of almost US$1700 as I'm writing this! It was already forecasted to hit some US$2000 in short term. Cash is fast becoming worthless as the US$ plunges as with the Euros. Other than some stronger currencies (in relativity to) like the Swiss Francs, Yen, Chinese Yuan and Singapore Dollar, the rest of the world is seeing their money turning into ashes.
Inflation is the evil in the investing community. We have seen countries like Argentina, Brazil, Indonesia and to some extent Russia losing their currency values in the past and having to cope with hard times. This is nothing new in the world, not to mention Zimbabwe's sky high inflation. Many African countries are suffering from this condition. What is new now is that developed countries have not had that much experience with it. So, when rich countries and highly developed markets turned poorer and being seen as unable to honor their debts, what do the world do?
When it comes to money, people are very much self-serving. This is coming from me and through my many years of experience in the finance industry. No one is an exception here. Well, almost no one. So, don't be deluded into thinking your neighbors are going to help you through hard times for an extended period of time. Sometimes, even your children or parents won't! You've to rely on yourself to get out of your bad shape, kinda like going on diet. No external help can do other than your own resolve. So, as with United States debt, only its people can do something about it. If not, be prepared for devaluation in the US$. It will come, be certain about that. By how much, that's the question you should be asking.
Conservatively, I put it at around 20%. That's not hefty. In fact, many countries have seen their currencies "cut" by half in the process. And, that's an overnight thing. So, staying liquid means not staying all in US$ if you're American. Neither is it all in cash!
I do not like stocks now and neither do I like bonds. Gold is not the thing to keep for the long term as it had already doubled from its previous historical high. I can't tell you what to do but this is what I do if I've a hefty sums of money. I'd park it in some strong currencies and gold (may be 10% just for insurance). I'll wait for the time to buy land plot (although not easy to find in prime areas but you've got to see beyond the current prime areas but if you have enough funds, the idea is not to get yourself involved in the markets and instead go around to look for prime plots) and some prime real estate (perhaps even in the US as long as I don't have to take up mortgages on them). The idea is not to be subjected to high interest rates. As soon as rates go up, you can be sure that lots of people will be forced to liquidate their investments in real estate. And when that happened without anyone to take over, you will get real good value. So, be ready to take that chance when it happens!
One worrying trend is the riots and people taking to the streets, even in the developed world. Joblessness will make people do "crazy" things and will topple governments. That's one turmoil we all have to be ready for. How to be ready for some form of "turmoil"? Stock up on daily essentials. This is THE insurance anyone has to be ready for. When a country is without government and we know the risk is high nowadays, you still need to eat and to be able to stay safe in your home. When the supermarkets are not opened, when there is no cash out of your bank ATMs, that's something that you should have at the back of anyone's mind. Especially if you have kids at home. In addition, with the surging inflation, the best money you could "make" and save is in stocking up essentials before the prices shot up by ten and ten of percentage!
I do think we'll see some countries lose decade of growth like the Japanese did. Which country? Well, it's anyone's guess although the ones with the most debt will find it hard to see sunshine from the deep pit!
Last but not least, recoveries through the printing of money is not real recovery. We all need to sell something to make our living. Same for any country. What is the United States going to sell now that it has capitalize on its reputation for quite some time? Military expertise? Technology? Land and resources? Immigration policy? That's a question I hope I've answer to, but unfortunately, I don't!
P.S. If you watch this interview, you might have spotted the Freudian slip there. Expect another credit rating downgrade on the Treasuries is not a far-fetched thought!
It comes at the worst possible timing ever! Markets are in for shocks and aftershocks. Not caught off guard but there will be lots of repercussions for the world at large! With the twin crisis both in Europe and US, time to run for cover if you haven't already! Markets expected to drop more in coming days, if not weeks!
On August 5, 2011, S&P lowered the United States' sovereign long-term credit rating from AAA to AA+. The S&P press release sent with the decision said, in part:
"The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics.
"More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.
"Since then, we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government's debt dynamics any time soon."
The following day, S&P acknowleged in writing a USD$2 trillion error in its calculations, saying the error "had no impact on the rating decision" and:
"In taking a longer term horizon of 10 years, the U.S. net general government debt level with the current assumptions would be $20.1 trillion (85% of 2021 GDP). With the original assumptions, the ...