A contrarian economist predicts a US market crash should the US Federal Reserve raise interest rates this September
We are living in historic times and after 80 years, will witness another crisis that would make many investors nervous. They might have to face sleepless nights moving forward. I see financial bloodbath to continue till 2020. What is the credibility of Janet Yellen (Federal Reserve Chairman) – the ‘Bubble Woman’?
I asked my Nobel Laureate professor, the late Gary Becker at University of Chicago, Booth School of Business in January 2014. He replied: “She would succumb to market pressure and create panic in the market like what happened in 1937.”
It’s so true. The recent statement of Janet saying that she would increase the interest rates by September is a clear testament to the prediction made by Prof Becker.
Since July/August 2014, I have been sharing that the Fed won’t increase the interest rates in June or September this year as the US economic recovery is still fragile and uncertain. Janet is sending the wrong signals to the market players, financial institutions and decision makers. She is manipulating all the markets and asset classes globally. A strong dollar is bad for the US economy. I have stayed ahead of the mainstream media in my analysis in understanding the global financial markets.
[ihc-hide-content ihc_mb_type=”show” ihc_mb_who=”1,2,3,4,5″ ihc_mb_template=”1″ ]
THREE LESSONS FROM 1H2015
According to the The Economist magazine (July 4, 2015), three risks have been identified:
1. The first is that political risk is very real. Over the past decade or so, investors seem to have decided that such risks are overblown. The Middle East crises have come and gone without the Straits of Hormuz being blocked and oil supplies impeded.
2. The second lesson is that investors are still dependent on the largesse of central banks. There was a sell-off in equities on June 29th when fears of a Greek exit from the euro zone resurfaced. But it was not as big as it would have been in 2011. Crucially, the bonds of Euro-zone members such as Portugal and Italy suffered only minor losses. That is because the European Central Bank has the monetary firepower to buy those countries’ bonds and ward off contagion.
3. The third lesson is that, because of reduced liquidity, markets can move very rapidly indeed. In the government-bond market, German 10-year yields went from 0.5% to almost zero in April, before rebounding back to nearly 1% and then falling back again. These are huge moves for a “risk-free” asset. The consensus has been that both the global economy and corporate profits will strengthen in the second half. If that doesn’t turn out to be the case, equity markets could be vulnerable.
How smart investors are making money?
In these turbulent times, clients have become extra cautious and are revisiting their asset portfolio strategy to protect themselves. Over the past few years, I’ve noticed a growing number of investors looking for ways to protect their wealth, shield their personal and financial privacy and safeguard their civil liberties.
These people don’t trust the individuals, big institutions or big corporate institutions. And quite frankly, neither do I. Smart investors have taken positions in real tangible assets. People of all ages, from all walks of life, are looking for ways to increase their income, increase their personal and financial privacy and increase their personal freedoms.
Smart investors are buying:
1. Trophy real estate in prime location globally;
2. Gold/silver as wealth insurance policy;
3. Oil and gas stocks;
4. Arts as wealth preservation and status symbols;
5. Agriculture—basics of life; and
6. Opening Chinese yuan accounts.
If you analyze the above asset classes, you would understand the mind-set of the smart investors who are going for REAL ASSETS in order to have peace of mind for their fund investment globally. Again, it depends on the clients risk profile at the end of the day. The clients need to ask 4 basic questions before taking positions in any asset class:
1. Risk profile
2. Risk Reward ratio
3. Time Horizon
4. Exit strategy
It makes much more economic and financial sense once clients can answer these basic questions in order to take solid positions for their asset portfolio in the long run.
[/ihc-hide-content]
Shan Saeed is Chief Economist and Investment Strategist at IQI Group Holdings, a property and investment company operating and advising clients in Kuala Lumpur, Singapore, Hong Kong, London, Melbourne and Dubai. August 2015 > 25