Investing / Markets / Private Equity / Saving for retirement / World Markets

Scream–the sky is falling

edvard-munch-the-screamI was reading a friends blog the other day; he was promoting banking facilities for the RMB (Chinese Yuan) and his argument, based on the video piece below, was: “the end is near.” He maintained that finance, as we know it, is at a “multi-cyclical shift” and the time for the U.S. Dollar–as the world’s reserve currency–is about to end. Interestingly enough, about two weeks ago, I had a client send me a very disturbing 15 minute video arguing that the U.K. was going to not only collapse, but do everything but fall into the sea or become a leper colony.

In my experience, these “end-of-days “predications, tend to come about at market extremes. In addition, we must consider who is producing the information, like the video on the U.S. Dollar is produced by a silver mining firm, which of course, would benefit from higher silver prices if financial chaos would appear.

Watch it here:

Let’s step back and consider what is said in this video. Upon discussing the video with my colleagues, (specifically Mr. Noel Guillama) we came to some common observations. For one thing, just because you’re a Canadian billionaire, you have not cornered the market on answers to the past, present or future. Yes, your accomplishments give credibility, but a 1970s type outlook won’t help us in 2013.Things have changed.

  1. Oil had it peak as monetary unit in the late 70s and early 80s. See how much we spend in US vs 1975 in oil based on GDP? Oil at $100 per barrel is a bargain. And there are so many alternative energy sources today we did not have in 1975.
  2. Yesterday’s oil is Today’s technology and innovation.
  3. Who leads the world in innovations by a huge margin? The USA. China is known to only copy.
  4. What do China and Russia innovate? China HAD cheap labor and lots of material resources, but their advantage is slowly slipping even on that end. Russia, on the other hand, only had natural resources, not even labor.
  5. China and Russia are command economies and socialist. NO command economy has ever lead the world in last 2000 years. Rome was not even a full command economy (or you would not have had the Forum).
  6. North America does not need oil from Russia or the Middle East. The situation will actually make the world less safe and more of a problem for Russia and China. Other than to wage an expensive war, that US will eventually win, China and Russia will not beat the US at anything.
  7. Investors like “transparency” and little government corruption, something that neither China nor Russia is capable of.
  8. The USA is the world’s consumer, and US consumers are getting tired of full closets and garages; they really don’t need a whole lot. So I think that future sales to US will be limited and China has a bit of a problem.
  9. Compare US GDP and per-capita income; Russia and China combined cannot get to the USA.
  10. The USA has more liquidity than rest of the world combined.
  11. The US dollar is the only alternative until and when Russia and China become true democracies, and capitalistic in an Adam Smith’s Wealth of Nations book way–and they both have capital restrictions and no free exchange rates.
  12. No other country has as independent and powerful Federal Reserve or at least something similar that is as large. They have $3 trillion of paper and the economy is not experiencing any inflation?
  13. How many of the world’s best universities are in China and Russia?

In summary: Russia has natural resources, China has people/labor, and the US has innovation, free enterprise and freedom.


So the next time someone forwards you a video and predicts the end of your nest egg, and tells you to convert all of your funds into a foreign currency and/or put save them under your mattress, stop… breathe… stay diversified in various asset classes and… the sun will rise tomorrow

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