Here are some reasons to diversify your wealth and protect your wealth.
One reason is the uncertainty of the US markets and the World Markets.
The reason we need to be extremely careful in protecting and diversifying our assets is because of two recent recession that could have put us in a great depression if the Federal Reserve and Central Bank did not step in and print money to stabilize the economy.
Americans are still not out of the woods yet. Meaning the economy is still on the edge of going into a recession or a depression.
Let us discuss what brought us into these two most recent recessions and what we can do to protect our wealth through these recessions or upcoming recessions.
The two most current recessions were the housing market of 2008 and the COVID-19 pandemic of 2020.
We are going to dive deeper and try to give some explanation of why both recessions happen, what caused these recessions and what we can do to protect our wealth in the upcoming future.
Let’s look back to the great crash of 2008. Those were scary times with Lehman Brothers, Countrywide, General Motors, and others major companies going out of business. Morgan Stanley and AIG and most of the large banking institutions were also being bailed out by the government or other private conglomerates and private investors, like Warren Buffet.
How did most investors or financial advisors play this situation? Most investors stayed for the ride, while some people got out. Other investors were too scared to get back in over time. The smart investors made money on the way down and on the way up. Which were you!!! The individual that stayed for the ride probably did not have the best financial advisor but better than the one that sold at the bottom. The best financial advisor saw the crash coming and positioned your portfolio for a defensive play or took most of your assets down to cash or other safer vehicles. Only a very few, hedge fund managers made money on both sides, especially the downside. Again, what camp were you in?
As we all know, the individuals that stayed, did retain their principle, or grew their principle above their base line of 2008 after many years. Thanks to the government bailouts and low interest rates by the government. Sorry to say, the individuals that got out, had a substantial large loss including their time curriculum to regain their profit.
So, what caused the crash in 2008 and will it happen again?
Through my research there were many factors. However, to keep it simple, I will just name a few things that played a key role in the crash in 2008.
The first leg of the crash was caused by George Bush and the congress pushing a law through that allowed all individuals the chance to become a first-time home buyer. Next, Alan Greenspan lowered the interest rates and then kept them at a low benchmark for far too long. Also, Bill Clinton and the republican congress of December 2007 when congress decided, by one vote to overturn the Glass-Steagall Act. The Glass–Steagall Act, also known as the Banking Act of 1933, was passed by Congress in 1933 and prohibits commercial banks from engaging in the investment business. It was enacted as an emergency response to the failure of nearly 5,000 banks during the Great Depression.
The reason why this law changed was because our large financial institutions and lobbyists were tired of seeing the internet tech giants get super rich through the stock market at that time. They wanted to come up with a way large banking industries could capture more revenue.
After the law passed the banking and financial institutions began to make financial vehicles that would benefit themselves and the public. However, as we all know they lacked regulations. These vehicles were called derivative, mortgage backed securities, and credit swaps. Mortgage-backed security (MBS) is a type of asset-backed security that is secured by a mortgage or collection of mortgages. The mortgages are sold to a group of individuals (a government agency or investment bank) that securitizes or packages the loans together into a security that investors can buy. These financial institutions learned to create large sums of wealth for the banking intuitions.
Manipulation of derivatives and mortgage back securities with the lack of regulation caused the fall of the real estate and stock market in 2008. Some stockbrokers took advantage of this situation and started to short the stock market. The market began to crash. Most of these banking institutions cleaned their books by selling these assets to Europe before the crash, which also drove Europe’s economy into a major recession.
With these few key changes from congress and our president in 2008, the great recession was born. Twenty years later, due to over regulations by the president at that time our economy was still barely running with a 2.0 (GDP) gross domestic product and the National Debt at that time was 20 Trillion.
The economy was starting to turn around by our next president reducing regulations for the small businesses and then a virus from China hit America. The government had to shut down the economy for a whole month to try to stop the spread of the virus called the COVID-19 virus, which stands for SARS- COV-2 coronavirus. This virus originated in Wuhan China. Some experts said it came from a china wet market where they sold bats, because the coronavirus is linked to bats. While other experts said that it came out of an Institute of Virology lab built to research and understand how these virus function. No matter where it came from, it came to America and has killed over 320,000 plus people and infected over seven million people.
In March 2020, the president and congress shut the country down for one month hoping that the virus would go away. At the same time the Federal Reserve launched the CARES Act that put 1,200 dollars into almost everybody’s pocket and tried to save the small business with a loan that did not need to be paid back, if the business owner kept their employees working for an extended period of time.
After the reopening of the country, state by state, the virus started climbing again and many small businesses needed to close their doors again.
In September, students returned to school and most of the college students were infected with the virus.
Again, another hold back for the business to move forward and open up. Of course, during all this time nobody was traveling which also put a damper on the economy. Congress finally released another Stimulus package for 1.8 Trillion called the HEALS Act which helped small businesses, the post office, extended unemployment and at the same time gave almost everybody another 600 dollars. So now the Federal Debt has climbed to approximately 27 Trillion.
As one knows when an economy comes to a complete stop and nobody is spending money, the economy can collapse. Without money flowing through the economy our system could easily shut down and head for a great depression.
In the meantime, with the Central Bank printing all this excess money, if this does not stimulate the economy then we will be heading for a massive downward spiral.
On the opposite side if the Central Bank prints too much money we can have hyperinflation. If we get hyperinflation the value of the dollar will decline, and it will take more dollars to buy the same product that you did two years ago or just last week.
The United States also could lose the dollar as the world currency.
When deleveraging, it is extremely hard for the government to find a smooth landing. So, I am telling you now, that I am overly concerned about how our government can or cannot balance this deleveraging act to lead to a smooth landing.
We could easily be in a great financial bubble which could lead to depression or hyperinflation.
Remember you can always make money on the way down as well as on the way up. This is why diversifying your assets are so important.
The question is? Will our economy recover, or will we go into a great depression or hyperinflation?
As I see it, the only chance for America to recover is to find a vaccine to get people back to work and get the economy moving again. If we receive a vaccine by January then we could make a V shape recovery and gently pull ourselves out of this tremendous debt obligation. However, the economy is still in terrible shape and is only being propped up by the Central Bank. Any other disaster would crush us which would lead us into a great depression. If this happens we will continue to print money, but the money will have no value. We will be in hyperinflation.
The country will move toward socialistic ways and of course the government will tax the rich tremendously. If the country goes into a U shape recovery the economy will struggle for three to five years to return to some normalcy or positive growth to pay down the Federal Debt.
Since the 1800, there has been thirty financial crises that have affected the financial markets. The three most recent are: the Barcelona attacks in 2017, the inflation scare of 2018, and the government shutdown of March 2020.
Was your financial portfolio or financial advisor prepared for one of these situations? Was your business prepared? Did you have a network to help you find distress property or businesses?
Let’s look back again at 2008 and 2020 and ask ourselves if we were prepared for these financial storms. Did we make the right decision on who our financial advisor were or how they managed our own portfolio through this turbulent time? Did we buy or hold the right assets? Did we have the right asset protection during these turbulent times?
For more information on understanding the markets and economy you can go to www.DiverseInvesting.com or purchase The Road Map to Investing on Amazon.
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