Jim Rickards Says Gold & The Russian Markets Are Safe Havens During The Next Financial Crisis
SilverDoctors.com
November 2, 2017
Jim says nobody should be surprised if the next financial panic begins tomorrow. Here’s why, and what to do about it…
by Jim Rickards of Daily Reckoning
The Greatest Fear Today: The Lack of Fear
Market crashes often happen not when everyone is worried about them, but when no one is worried about them.
Complacency and overconfidence are good leading indicators of an overvalued market set for a correction or worse. Prominent magazine covers are notorious for declaring a boundless bull market right at the top just before a crash or correction.
October 19 saw the thirtieth anniversary of the greatest one-day percentage stock market crash in U.S. history — a 22% fall on October 19, 1987. In today’s Dow points, a 22% decline would equal a one-day drop of over 5,000 points!
I remember October 19, 1987 well. I was chief credit officer of a major government bond dealer. We didn’t have the internet back then, but we did have trading screens with live quotes. I couldn’t believe what I was watching at first, but by 2:00 in the afternoon we were all glued to our screens.
It was like being a passenger on a plane that was crashing, but you had no way out of the plane. Our firm was fine (bonds rallied as stocks crashed), but we were concerned about counterparties going bankrupt and not being able to pay us on our winning bets in bonds.
What’s troubling is that a lot of commentators said that the kind of crash that took place in 1987 couldn’t happen today and that markets were much safer. It’s true that circuit breakers and market closures could temporarily halt a slide better than we did in 1987. But those devices buy time, they don’t solve the underlying fear and panic that causes market crashes.
In any case, when I hear market pros say “It can’t happen again” it sounds to me like another market crash is just around the corner.
The problem with a market meltdown in today’s even more deeply interconnected markets, is that once it strikes, it’s difficult to contain. It can spread rapidly. Likewise, there’s no guarantee that a stock market meltdown will be contained to stocks.
Panic can quickly spread to bonds, emerging markets, and currencies in a general liquidity crisis as happened in 2008.
Why should investors be so concerned right now?
For almost a year, one of the most profitable trading strategies has been to sell volatility. That’s about to change…
Since the election of Donald Trump stocks have been a one-way bet. They almost always go up, and have hit record highs day after day. The strategy of selling volatility has been so profitable that promoters tout it to investors as a source of “steady, low-risk income.”
Nothing could be further from the truth.
Yes, sellers of volatility have made steady profits the past year. But the strategy is extremely risky and you could lose all of your profits in a single bad day.
Think of this strategy as betting your life’s savings on red at a roulette table. If the wheel comes up red, you double your money. But if you keep playing eventually the wheel will come up black and you’ll lose everything.
The Rest…HERE
