LAWRIE WILLIAMS: Bubble, bubble, toil and trouble
The title is a frequent misquote from Shakespeare’s Macbeth – it should be ‘Double, Double...’ – but the misquote is extremely apt for what is happening in the markets right now. The news that Tesla achieved a market capitalisation of $1 trillion, brings it all to the forefront. With equity markets seemingly sky high, and appearing to be unstoppable as far as the general investor, in the U.S. in particular, is concerned, we have to be approaching a parallel to what happened back in 1929 with the Wall Street Crash. The parallels are uncanny.
My recommendation is to exit from these unsustainable markets and take any profits before it is too late. It’s better to come out early, if that proves to be the case, before the markets come crashing down with waterfall losses occurring by the hour. The crash, as I see it, is inevitable. Only its timing is in doubt. I will be hugely surprised, and chastened, if we survive the current decade without seeing such a cataclysmic event occurring.
Take Tesla as a prime example. In no way can its profit record justify such a high market capitalisation. Arguably, the hugely indebted electric car manufacturer should be seeking bankruptcy protection rather than flying high in the markets. Its price is driven ever higher by a charismatic founder with a messianic following, but in no way in the real world should the company have a market capitalisation larger than that of industry giants like GMC and Ford.
But perhaps one should expect no better of the U.S. population with its proclivity to believe in inane conspiracy theories en masse. If one looks for investment bubbles they are everywhere – not Tesla alone. Bitcoin, tech stocks, the equity markets in general etc. People are being led to believe what they want to believe, led on by the media, social and general, and by monetary greed, which just adds fuel to the flames. We are all subject to psychological pressures which have never existed beforehand. Long live the American dream! It will likely not last long before everything comes crashing down.
As in the 1930s, the prudent investor will survive – bloodied but intact. But one fears for the impact on the general population. There will be huge social unrest and the politicians of the day may well try and divert attention away by instigating wars. But with today’s modern weaponry military outcomes may not work out the way strategic planners model. Victory, if there is such a thing, may not necessarily go the way of the on-paper strongest, but to those who master today’s technology the best. The geeks will come into their own.
There will definitely be a change in the world order regardless. Such changes are already in progress, but global unrest may accelerate this, or even alter the likely outcome.
How does one protect oneself? Gold has always been the traditional safe haven against financial calamity. If the equity market crash does occur, and my gut feel is that it will, the gold price could well get marked down too in the general sell-off as investors and funds struggle for liquidity. But don’t panic. History tells us that the gold price will likely recover quickly, and quite probably rise to new heights, in the ensuing financial mayhem. It remains your best bet at salvaging your wealth.
Equities – particularly the recent high flyers – will likely lose a significant proportion of their value, although there will be bargains to be had aplenty if one does one’s due diligence. It’s in the recovery from such a crash that lasting fortunes have often been made.
Forget bitcoin too. Power failures and utility shutdowns will mean that digital assets cannot be accessed. I have always been of the view that bitcoin will eventually descend to the level from which it came – near zero. Bitcoin mania is just another example of the collective malaise that is affecting society at present and driving all kinds of assets to bubble levels.
Gold held in vaults could also suffer access problems. It may well be best to keep some bullion at home. What can happen in a monetary collapse was highlighted recently by a Bloomberg article focussing on a remote village in Venezuela where local businesses were setting prices in grams of gold. Be warned!
OK – one may consider my Cassandra-like take on the current financial system and society as a whole as totally off-the-wall. (For those unfamiliar with the reference, Cassandra was a Trojan priestess, daughter of King Priam, cursed by Apollo to utter true prophecies, but these were never to be believed.) My prophecies of financial collapse may also not be believed by most readers, but they could well come true. It’s best to be prepared just in case!