I am an optimistic, generally happy-go-lucky person. I’ve procrastinated writing this article for weeks because I loathe all of the articles already out there that continually “sell FUD” (Fear, Uncertainty, and Doubt). However, as I’m not actually selling anything (everything here is free so far) 🙂 I hope you will hear me out.
Also, Kung Fu Finance truly is based on the art of kung fu, which is defined by the Taoist philosophy that emphasizes truth, reality, and the way things actually are—as opposed to how we might wish them to be. (See Bruce Lee’s “The Tao of Kung Fu” for more information).
And unfortunately, as much as I might wish them to be different, these are not “optimistic” times in the financial world. In fact, the macroeconomic forces that are wielding power over the global financial markets are truly forces to be reckoned with (hence my warning in Friday’s missive about the stock market currently being an extremely difficult place to make money due to all of the volatility caused by these forces.)
Today, as I write this, the S&P is down almost 30 points, the DOW is down over 300 points, the NASDAQ is down almost 65 points, and spot gold is down almost $50 to under $1700…with all of this happening with more than 4x the volume on the downside!
We are witnessing the continued massive de-leveraging of the mortgage debt crisis of 2008, except that now the problem has snowballed and morphed into an even larger problem—a global sovereign debt crisis, with a current focus on Europe (though many, many countries have the same problem, including the good old US of A).
Just take a look at some of the most recent happenings…
Europe continues to implode. Spain is the sixth(!) Euro country to elect a new government in the past few months, and yet the yields on Spanish bonds continue to rise, nearing the key threshold of 7% (they are currently 6.55% and rising), making the debt ever-more difficult and expensive for the Spanish government to service. And that’s just Spain….Italy’s 10-year bonds are also nearing 7%, Ireland’s are over 8%, and Greece’s are at 28.18%(!) even after taking a “haircut” earlier this year. The situation is quickly becoming unsustainable.
A letter from Credit Suisse today entitled “The ‘Last Days’ of the Euro” proclaims,
“We seem to have entered the last days of the euro as we currently know it...it does mean some extraordinary things will almost certainly need to happen – probably by mid-January – to prevent the progressive closure of all the euro zone sovereign bond markets, potentially accompanied by escalating runs on even the strongest banks.”
This has been widely published in all of the financial newspapers and on CNBC, but you can read it in its entirety at my favorite financial news publication, ZeroHedge.
Then we have the good old US of A, where the ludicrous “Super Committee” that was supposed to have announced a marvelous plan to reduce our ever-growing and completely-out-of-hand deficit is instead expecting to announce, you guessed it, another EPIC FAIL.
Additionally, the US Debt passed the $15 Trillion mark(!) last week and when you add in all of the unfunded liabilities such as Social Security and Medicare, it surpasses $50 Trillion. It’s completely unsustainable, and growing ever worse, not better.
Add to this the recent collapse and scandal of MF Global, the cash and derivatives broker-dealer, where customers are still frozen out of their accounts and missing money…
“The amount of money MF Global should have segregated for customers may be short by “$1.2 billion or more,” trustee James Giddens said in a statement.” — Reuters
The MF Global scandal is so egregious that at least one commercial hedge broker, after operating for more than fourteen years, has decided to close up shop in disgust. Ann Barnhardt closed her firm and issued the following letter to her clients last week,
“It is with regret and unflinching moral certainty that I announce that Barnhardt Capital Management has ceased operations…The reason for my decision to pull the plug was excruciatingly simple: I could no longer tell my clients that their monies and positions were safe in the futures and options markets – because they are not. And this goes not just for my clients, but for every futures and options account in the United States. The entire system has been utterly destroyed by the MF Global collapse.” — Ann Barnhardt
And I won’t even begin to mention the coming train-wreck that is China…
Suffice it to say, the cold hard brutal reality of the situation is that things are not looking good for the global financial markets. As much as I might wish otherwise (and I do), it is foolish to stick my head in the sand and just “hope” that things will “somehow work out” and “get better” soon…that’s a recipe for disaster.
It is now more important than ever to protect yourself and your family by ramping up your financial education, thinking for yourself, and becoming more self-reliant. You simply do not have the luxury any longer of depending on someone else to take care of you or your money, particularly your bankrupt government (who may be ousted at any moment like the governments of Spain, Italy, Greece, Ireland, Portugal and Slovakia were).
Grasshopper, it is now up to you. You are in control of your financial future.
The great news, though, is that you can do it! I believe it is absolutely possible to survive (and hopefully thrive) through all of this craziness. But you do need to take steps to ramp up your learning and protect yourself.
Here is what I am doing:
- Opening a foreign bank account to diversify my geo-political risk. (In progress– researching Singapore and Hong Kong options)
- Keeping my gold and silver to diversify my currency risk. (And reading James Rickards new book, Currency Wars…great read so far)
- Keeping a larger-than-usual allocation to cash, in a basket of currencies (at some point there will be a great buying opportunity and I want to be ready for it)
- Continuing to grow my own financial education (Attending the San Francisco Hard Assets and “Rare Earth Summit for Accredited Investors” next week)
- Continuing to work on my own business that I can run from anywhere in the world
What is your plan? I’d love to hear it!
To your financial success,
—Kung Fu Girl