Imagine a time when the market was stable, with very little volatility, and things had been that way for months. The markets experienced some dips, but overall it was stable. Then nearly overnight, disaster struck – the market started to collapse and a cataclysmic effect sent the market crashing down nearly 25 % in one day. Would you be prepared? How would your family survive in the wake of this fiscal tragedy? This isn’t just an idle question, it happened on the Dow Jones in 19872 on that fateful day remembered as Black Monday, and it could happen again. I remember October 19, 1987 like it was yesterday. I was just a young kid who lost most of my savings in one full swoop by investing in risky warrants that lost 90% of their value and were 6-weeks from expiring. There was no way I was going to recover my hard-earned money. My dreams of becoming a millionaire teenager were thrown out the window whilst others just jumped.
For those who keep an eye on the movements on Wall Street, there are warning bells going off signaling an impending crash. It’s hard to tell the midst of the apparent health of US equities, with major indexes hanging out in record high points this past week, and corporations generating earnings at a breakneck pace. In spite of all this, it’s becoming increasingly clear to certain analysts that all of this apparent prosperity is just the thin golden crust over a rotten core.1
These concepts come from the experiences of knowledgeable analysts who have watched the market for decades, recognizing patterns of boom and bust. It may seem counter-intuitive, but periods of volatility seem to indicate a healthy and thriving market, it’s when things settle down and seem stable that an impending crash is the most likely. Recent prime examples of this can be found both in the 1987 and 2008 crashes.
There’s no denying the market has been performing well lately, but there is some question as to what led it to push the Dow beyond 22,000 points. There are few answers with significant questions, and all it will take is one ‘major’ investor waking up to the pending reality and beginning to sell to see the entire stack of cards come tumbling down. Sound alarmist? Based on two great market crashes in history, what it sounds like is, instead, realism and educated guesses based on a well-documented past.4
Let’s take note of the fact that retailers have been shutting their doors in numbers that have no precedence, indicating the struggles faced by retail and distribution corporations. Those who try to find a silver lining think it’s just too expensive for retailers to keep up when faced against e-commerce competition. There is some logic in this, but it leaves a lot of questions open about the real reasons behind these collapses, especially when you take note of the fact that these same optimists tend to avoid commenting on the US economy as a whole.5
Considering the falling confidence in the market and as a result, the US economy as a whole – it’s unsurprising that they’re avoiding this topic. Take a look at September, a publication by the University of Michigan indicated that consumer confidence index in the market fell a stomach-churning 95.1 points, for those not familiar with how that rates against that index it was at a three-year average of 105.3 between 1997 to 2000, a period that was considered a boom time. Little else needs to be said to indicate how poorly this speaks for the health of the US economy.5
Two things are tied together undermining this confidence in the US Economy, though they are by no means the only factors involved. Throughout the last generation there has been a banner carried for the value of a college education, as a direct result the market is flooded with candidates that hold the same degrees and the hiring situation really hasn’t improved. Combine that with the creeping cost of education and the Millennials are in a very bad place when it comes to debt vs. income. It should therefore come as no surprise that these same Millennials aren’t purchasing homes.6
That my friends, is the other side of this two-part equation that plays into a much larger situation. The other are signs of a burgeoning collapse in the housing market due in part and caused in part, by the rising cost of real estate in the world. Sharp increases in the cost of homes, especially in a time when few people are buying, is a good sign that things are about to take a solid downward turn. That with a rising tide of delinquencies, poor affordability of homes, and lending criteria that are either too strict or, as we learned in the last housing bubble that popped, too lenient are all warning bells of what’s to come.7
What’s an investor to do during this time of dark omens and looming portents? According to http://www.usagold.com/cpmforum/, the answer is pretty simple, we protect ourselves against the coming fall the same way we always have, by investing in the immutable solidarity of gold. Gold has been on a rising trend against the dollar since the beginning of the year. That’s any dollar you happen to name, from the Euro to the Canadian Dollar. The US Dollar has often been considered a safe form of fiat currency to store your investments in, but recent trends are showing that gold, the companion haven favorite, is showing itself to be more and more of a solid investment.8
The crash may be coming, and according to many analysts it’s not a matter of if, it’s a matter of when. Now may be the time to start preparing yourself for the possibility of an eventual fiscal collapse. Protecting your family and your investments with the reliability of gold is just smart investing, a fact supported by referencing the last great stock market crash. Gold bullion not only held its own through the crash of 2008, but actually increased in value after the initial crash, proving its worth as a haven. 9 As for gold’s little brother: silver held up as well and went up shortly after the crash. 9 Prior to the crash it exhibited the same behavior it is right now, rising in tandem with bonds, just one more sign that a repeat of Black Monday may be looming.
Dr. Kal Kotecha
1. 1. http://www.businessinsider.com/stock-market-today-wall-street-sending-huge-warning-signs-2017-7
2. 2. https://en.wikipedia.org/wiki/Black_Monday_(1987)
3. 3. http://www.businessinsider.com/warnings-signs-bull-market-in-stocks-coming-to-end-2017-2
4. 4. https://www.lombardiletter.com/signs-clear-dollar-collapse-approaching/18157/
5. 5. https://www.lombardiletter.com/clear-sign-u-s-economy-struggling/18436/
6. 6. https://www.bloomberg.com/news/articles/2017-07-17/student-debt-is-hurting-millennial-homeownership
7. 7. https://www.yourmortgage.com.au/article/how-to-spot-a-housing-bubble-5-warning-signs-84468.aspx
8. 8. http://www.usagold.com/cpmforum/
9. 9. https://seekingalpha.com/article/588311-marc-faber-crash-of-1987-revisited?page=2
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