MARKETS UPDATE: Thoughts On The Current Market Crash

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The last two months have been an exceptionally volatile period for global stock markets. The current CORVID-19 pandemic was a quintessential black swan event, which took everyone by surprise and its consequences have had a clear affect on the markets during this period. For a long time, I thought that markets were overvalued and due for an eventual correction. The root of my worries were based on the increasing levels of global debt since the last financial crisis of 2008 that have been fuelled by an unusually long period of low interest rates. With low interest rates money is cheap and cheap money has been the cause of the high valuations of many stocks and other assets such as property. All this concerned me. I knew it wasn’t sustainable and that eventually something would have to give. Yet little did I know that the catalyst for this current market crash would be a virus, which is now affecting citizens and the economies of every country on the planet.

I wrote an article back in 2017 and another one last year stating my fear that markets were overheating. Throughout all of 2019, I almost became resigned to the fact that we were in a ten year plus long bull market that seemed to show now signs of slowing down. Save for a sharp but very brief correction in equity markets from October to December 2018, the markets duly recovered and subsequently continued to hit new highs. Earlier this year, the NASDAQ index hit over 9,000 points and by mid February it had hit a new record of over 9,700 points. Back then I decided to view a longer term chart of the NASDAQ index and had discovered that back in March 2009, in the wake of all the wreckage of the last financial crisis, the NASDAQ index had collapsed to just under 1,300 points. In almost 11 years, the index had increased over 7 times in value. In the UK, only the FTSE 250 index comes close to matching the NASDAQ’s performance, but even the FTSE 250 has been no match. During that same time frame, the index went from under 6,000 points in March 2009 to a record high of almost 22,000 points in January this year. That represents an almost four fold increase in value. Impressive but still falling short of the NASDAQ’s run.

The reason for the NASDAQ’s epic performance is quite simply the unbelievable success of many of the biggest technology companies in the world, which are all listed on it’s exchange. The following NASDAQ listed companies: Amazon, Apple, Facebook, Alphabet, Netflix and Microsoft: have all been quite simply ‘crushing it’ throughout the last decade.

In the UK, the two principle stock market indexes are the FTSE 100 and the FTSE 250. Even though the UK doesn’t have anywhere near the kinds of innovative and exponential tech companies that come out of the US, the UK has a lot of thriving successful growth businesses and lots of these are listed on the FTSE 250. The FTSE 100, on the other hand, is made up more of long established big businesses with multi billion pound market capitalizations. Examples of such companies include Royal Dutch Shell, BP, Rio Tinto, HSBC, Unilever, Vodafone and British American Tobacco. These are big behemoth companies, which may lack the growth prospects of the smaller businesses listed in the FTSE 250. Yet what they lack in growth potential, they make up for by paying quite large dividends to their shareholders as their businesses generate a lot of cash. The FTSE 100 overall has, by comparison, not been a great performer. Even though from March 2009 until the January 2020, it went from less than 3800 points to almost 7700 points. Even though the index more than doubled during this period, it’s also worth bearing in mind that just before the turn of the new millenium, on December 10th 1999, the index was over 6700 points.

What is noticeable about this particular market crash is just how dramatic it’s been. Before the very beginnings of this market crash, when the markets closed on Friday 21st February, the NASDAQ was trading at over 9500 points, the S&P 500 was over 3,300 points, the FTSE 100 was over 7,400 points and the FTSE 250 was just a few points short of 21,800 points. By the time the markets closed just a few days ago on Monday 23rd March, the NASDAQ was below 6,900 points, the S&P 500 was a little higher than 2,200 points, the FTSE 100 had gone below 5000 points, and the FTSE 250 was trading slightly north of 13,000 points. In fact, just a few days previously on March 19th, the FTSE 250 had hit almost 12,800 points.

In the space of little over a month, the NASDAQ had fallen around 27%, the S&P 500 had lost around 33%, the FTSE 100 had shed 32% and the FTSE 250 had lost over 40% of it’s value. Since these lows from last Monday, markets have made some gains owing to stimulus from central banks, yet at the close on Friday yesterday, a good chunk of these gains were erased.

Going forward

The question now is, how will markets behave over the coming weeks and months? Will the lows hit last Monday be retested? It is always hard to predict the future, but I think they will be. The difference between this crisis and others is that this virus has been very disruptive. Since there is still currently no cure for the virus, the only measures to contain the virus have been for governments to impose lockdowns and restrict the movement of people. The most affected industries include the airline and travel industries. The airline industry in particular has been greatly affected as the number of flights have been severely diminished. It is likely that even the most established airline companies will struggle going forward without some form of a government bailout. With their cash flows from operations dramatically reduced, they will be drawing on their precious cash reserves to keep the lights on. But the truth is, with the restriction of movement, most industries will be affected. If a lot of the most affected companies struggle to remain a going concern they will go bust and as a consequence many people will lose their jobs. As an increasing number of people lose their jobs, they will have no income and likely also little to no cash savings to keep them going. There will be a frantic need to create liquidity to free up emergency cash. And this is why there has been a sell off of almost everything, even the most defensive of assets such as gold. When people are desperate for cash they will sell anything. This notion that cash is trash is a myth. In a difficult crisis such as this one, hard cash is king.

So going back to my earlier question; will markets continue to fall? I think they will as I don’t see lockdown measures easing any time soon. I also see an increasing number of people continue to lose their jobs and as a result an increasing need for emergency cash as more incomes dry up. In this situation, markets will continue to sell off. Shares that may seem like a bargain now will get even cheaper. I think the situation is serious enough to say that it is likely that some of the lows of the 2008-9 financial crisis will be tested. Yet do I think there are currently bargain shares to buy? Of course. But at the same time one should ask themselves the following; how much free cash do they currently have to invest? Not essential cash to survive, but cash they can either afford to lose or not have any need to draw upon for at least five years. If the latter than I would recommend periodically drip-buying a select number of quality companies (that are not over leveraged, that generate a lot of cash and have sufficient liquidity to be able to ride out this crisis and thus recover once its over), investment trusts or tracker funds over the coming weeks and months.

Cheap money 

It is likely that as the current crisis continues to bite, they will be a lot of government intervention to help citizens and business. One solution that has been doing the rounds is the idea of creating ‘helicopter money’ whereby central banks print money which is then given directly to households to help them and keep them solvent. In the USA, the current Trump government is planning on putting together a $2tn rescue package to aid businesses and households most affected. With interest rates at close to zero, the idea of printing staggering sums of money is a tempting one. As mentioned at the beginning of the article, since the 2008 financial crisis we have had a long period of low interest rates. And since the first shocks of the current crisis began to appear, both the Fed and Back of England reduced interest rates even further. As of now, the current Fed interest rate stands at 0% and the Back of England interest rate is 0.1%. With such rock bottom rates, the temptation to just keep printing money to infinity is very strong. As previous rounds of Quantitative Easing (QE) since the 2008 financial crisis have barely had an impact on triggering inflation, the current conventional wisdom is that even bigger rounds of money printing will also barely stoke inflation. Even the former head of the European Central Bank (ECB) Mario Draghi who back in 2012 vowed to do ‘whatever it takes’ to save the Euro, recently commented that interest rates will remain low for a very long time. Others also share this belief. But what if, out of nowhere, in the midst of all this money printing, a tsunami of inflation catches everybody off guard forcing central banks to abruptly increase interest rates to control it?

In gold and silver we trust

If you have read some of my other articles you will see that I have always been a big fan of precious metals. And this is especially true now in our current economic climate where uber-low interest rates and cheap money have been reigning supreme. A consequence of more than a decade of low interest rates has been that total levels of government, corporate and household debts have increased dramatically. To exacerbate an already fragile economic situation, the current crisis has triggered central banks of major economies to drop interest rates to zero. On top of this, humongous rescue packages are being created to aid affected households and businesses. Although this may create short term relief, it will further accelerate already staggering levels of global debt, which have already been allowed to get out of control for too long. Taking on debt is fine when interest rates are low, but what happens if all of a sudden interest rates increase? I say this, because as I previously mentioned, not many people are taking into account the very real threat of inflation, which may finally be awakened out of its slumber in a big way as a consequence of larger than normal levels of money printing. When interest rates increase to control this inflation, suddenly all this cheap money floating around will seize to be cheap and all this gigantic debt will become more expensive to service.

I can’t help but think that all this will be nothing but beneficial towards the prices of gold and silver. Over the last several months, gold has been slowly increasing in value. It recently hit $1,700 an ounce and is currently hovering in the $1,600s. In my view, I think any dips in the gold price should be taken advantage of. It is unavoidable that there will be dips in the gold price as households scramble to free up cash, but over the coming months and years I think gold will do very well.

I am equally keen on silver. It is less scarce than gold and is more sensitive to industrial demand, but compared to gold it is currently extremely under-priced. For many years the silver to gold ratio (SGR) oscillated between around 20 and 100, and it was an incredibly rare moment if it ever went above 100. Over the last two weeks, this ratio broke the 100 ceiling and spiked to over 125 at one point. As I type, the ratio is 112. A consequence of this further distancing between the gold and silver price has caused some to say that silver is done and has lost its appeal as a store of value. Yet I disagree strongly. If anything, I think this is an incredibly good buying opportunity to have exposure to silver as I can foresee it playing catch up to gold in an epic way.

 

By Nicholas Peart

29th March 2020

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Image: OpenClipart-Vectors

 

THE TRUE SINGULARITY: A Universe Of Unlimited Abundance And Eternal Harmony

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The Singularity is a term referring to the point when Artificial Intelligence (or more specifically Artificial General Intelligence) will be at the same level as human intelligence. I feel that the term is often misunderstood and many people find the prospect of this dystopian and dehumanising. Technology has already changed our lives in unprecedented ways. When I think of technology, I don’t just think of hardware or software. For me, technology means problem solving or finding a much needed solution to a glaring limitation. When seen through this lens, it is clear that technology enhances and assists our lives. The world is much more connected then ever before and we have many applications (most of which are free) at our disposal to help us save time and money.

The beginnings of the first industrial revolution in the 18th century, via the inventions of the steam engine, spinning jenny and power loom, dramatically reduced the number of hours traditional labourers worked. This period was an unprecedented gamechanger in the evolution of humanity. Then the invention of the railroad, the development of an advanced network of roads, the move from the horse and cart to the automobile, the invention of electricity and the lightbulb negating the need for candles and oil lamps, the invention of the aeroplane, the invention of the radio and the telephone, and then the television and later the internet; the invention of all these things created solutions, made our lives easier, saved everyone time and money and enhanced the connectivity of the world.

For some, the Singularity is solely based around this concept of AI matching human levels of intelligence and the potential end of the human race. What many forget to understand are all the benefits of AI. Instead of this doom and gloom future, I see the continued development and enhancement of AI contributing to a more prosperous and peaceful world. I believe that technology via AI will make all jobs obsolete. A Post-Work society is unavoidable. Many people worry about such a situation and its perfectly understandable. Yet they are worrying about it from the limited paradigm of our current economic model of global capitalism. Lets try to view the bigger picture. What if technology became so advanced that it were to, by default, make economics and money obsolete? In a world where nothing is exclusive and all physical goods and services are unlimited and at zero cost, since technologies such as 3D/4D Printing, AI and data creation and mining, Nanotechnology, Genetic Engineering and Robotics would have contributed towards making such a world like this a reality.

In today’s world, most people’s primary worries are economic. Followed by their physical and emotional wellbeing. Followed by their hopes, dreams, desires and ambitions. A world of an unlimited abundance of everything at no cost would take care of our economic worries. A common worry of such a post-work Singularity future is how a lot of people who always had jobs would begin to develop serious psychological problems since much of their identity was always traditionally defined by their job. Yet when I envisage the Singularity and super advanced AI, I also believe that by that time every single cell in the body of each one of us will be completely understood at the most minute level. Each one of our bodies will be like smart data machines with highly advanced algorithms continually keeping track of the entire physical and emotional health of our body, and enabling us to maintain perfect optimum health via the nano-signalling and detection of decaying cells and any irregular and abnormal behaviour in our nervous system. Nobody would ever become ill or develop serious illnesses such as cancer. Our bodies will be merged and upgraded with technology. The latest AI developments will be merged in our own bodies. Everyone will be a SMART hyperconnected entity. And I would even go as far as saying that this would negate the need to eat, drink, sleep, experience temperature fluctuations or fatigue. Our consciousness and memory would be preserved, stored and enhanced. Yet all the limitations and shortcomings of our physical sensations would be transcended by technology. This technology won’t numb us or kill our empathy (I would even argue that it will augment our empathy and consciousness in unprecedented ways), but it will protect us from many mental health issues, which currently affect so many people around the world. Mental health will cease to be invisible as it is today and will be just as clear as our physical health. There will be no chasm between the two. 

Furthermore technology extends to providing solutions to bigger issues, beyond paving the way for transhumanism and a post-work and post-capitalist society. Climate change and global environmental pollution (such as air, land and sea pollution) can all be reversed by technology. Technology has the power to eradicate all the plastic and polluting debris in our oceans. Technology has the power to purify the air in large cities. Dare I say technology even has the power to replenish and restore the environmental balance of the world.  One day technology will enable humanity to be an interplanetary and intergalactic species.

In short, technology has the power to create solutions to all our current problems we experience today. It is easy to be cynical and look at how technology can also be destructive but if we are looking at technology in all its totality in providing solutions to all the most pressing struggles and limitations faced by many, then a post-work, post-scarcity, limitless, prosperous, and a perfectly level and peaceful world is more than achievable.

 

By Nicholas Peart

(c)All Rights Reserved 

 

Image: acekreations

Solutions Solutions Solutions

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There are many problems and challenges facing the world and no shortage of writers and journalists in the media who are only too willing to heighten our awareness of all these issues. What there is a shortage of though, are individuals finding solutions to all these issues.

Talk is cheap. Withering, junk-food grade criticism is even cheaper. I am forever bored of writing that amplifies the problems of the world without shedding at least a mere pinhole of light and solutions to these problems. This is one of the reasons why I am turned on by hearing and learning about new and emerging technologies, because more often than not they provide solutions to most of these problems. They also enable me to foresee a future that is not as dire as what is often projected in much of the media.

For example, a very real and pressing social issue in the UK is the underfunding of the National Health Service and the uncertain future it currently faces. This is a huge concern as private healthcare can be very expensive and not everyone can afford it. This is especially true across the pond in the USA, where healthcare is notoriously costly. The biggest solution I see to making healthcare cheaper, more abundant and available is the further development of new and emerging technologies. Many fear the rise of Artificial Intelligence and Robotics. But the development of both these two technologies will bring unprecedented benefits in the race to making healthcare not only more affordable (or even almost free) but more advanced too. Imagine robotic surgeons much more advanced than human surgeons – they don’t get nervous or stressed, they can analyze the entire human body at the molecular level and perform surgeries with nano precision. Already robotic surgery devices exist yet the scope for further development is limitless. Nanotechnology will play a very important role in understanding the entire body at the celular level and will be revolutionary in enabling everyone to maintain optimum health at all times without any viruses and damaged cells occurring. And all this can be managed via a digital application or chip without intervention from a finite supply of human doctors. I could go on but it is solutions like these to a current and real crisis that give hope and enable one to re-evaluate their hard wired negative perceptions of a situation.

Worried about the rising costs of education? Virtual Reality will be a huge game changer. This will be an enormous boon in parts of the world where there is a limited supply of teachers. With VR you won’t even need to physically step into a bricks and mortar learning institution.

There are many parts of the world, which lack enough of the right type of land to grow crops. Vertical farming is one of the potential solutions especially at the aeroponic level where crops can be grown simply via the nutrients in the air. It is still a technology that is very much in its infancy yet would reduce global hunger levels dramatically once it gets to a stage where it is much more advanced.

These are just a few solutions. I am no engineer, scientist or inventor, but knowing that these are very real solutions with the capacity to eradicate many of the most pressing global problems fills me with hope and optimism for the future. It sure beats being constantly fed the broken-record narrative in much of the news about how awful things are and that they are only going to get worse.

 

By Nicholas Peart

(c)All Rights Reserved

 

 

 

 

Solutions In The Age Of Job Security Decline

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This is an unpublished piece I wrote back in May 2017

Today we are living during an extraordinary time where technology is advancing at an exponential pace. The growth of the internet and powerful emerging technologies like Artificial Intelligence are disrupting industries and jobs that were once considered safe. It seems to me that the traditional Industrial Age job seeker 9-5 modal of working and job security are in decline. Replacing this is the rise of the precarious gig economy of job scraps with zero hour contracts.

Any job where the work is repetitive and/or is work where there are patterns in the tasks is most certainly at risk from potential automation. In fact the whole notion of ‘a job’ is changing. Restricting yourself to the mindset of solely looking for work is restricting yourself to a periodically shrinking pool of increasingly scarce opportunities. On the other hand, if you can move away from the mindset of a job seeker to one of a job creator or entrepreneur than you have already prepared yourself. That is the new job security.

 

Solutions for Workers in low paid Unskilled Jobs

Low paid jobs such retail and bank clerk jobs, cleaning jobs, transportation driver jobs, factory workers and all kinds of call centre and admin work etc are the most at risk from automation. In fact many of the jobs in these industries have already been automated. It is important that people in these jobs take a moment to retreat and try to understand a bit more about themselves. What are your interests and passions? What inspires you? If you have a passion, say for example, for cooking or gardening, you could start a blog and connect with people and impart some unique and sought after tips and extend this into offering a paid service like cooking or gardening classes/workshops. There are also more potential revenue streams like providing advertising space on your website especially if you have lots of subscribers and followers. You could also focus on a more specialised form of something that you are passionate about which would make you stand out if the market of the area you are focusing on is overly saturated.

 

Solutions for Professionals

Professionals in the medical, legal and financial services require more skills than people in low paid unskilled work yet it does not mean that their jobs are not immune from the potential threat of automation. As I already mentioned, it is important to understand and know what interests and inspires you as it can potentially be translated into a successful online business or project. Alternatively, if you are, for example, a lawyer working for a large law firm and you want to remain in the industry, you could start your own online law business in an area of law you are most interested in. In a way, AI will be very beneficial to the legal industry since super intelligent deep learning systems will be able to (and already are to a degree) crunch through reams of dry data and documents in far less time than a human can. This will have the added benefit of freeing up more time to work on more cases and more interesting aspects of law. Furthermore, all these new technologies will make running your own business easier, saving you both time and money.

 

Solutions for Creatives

If you are an artist, musician, writer or fashion designer etc, the most important thing is finding and connecting with your biggest and most loyal fans since they are the ones who will always willingly fund what you do whenever you try to sell your products and services. With the rapid growth of the internet and social network sites this is easier to do than ever before. All this enables creatives to potentially bypass middle agents and deal directly with their fans, meaning all profits go directly to you without any middle people taking a cut. Twitter is an indispensable social networking site for constantly networking, connecting and keeping your fans up to date with all your developments. Instagram was made for creatives and is a very powerful platform to network and showcase your uniqueness.

If you are a creative that is shy and feels uncomfortable with networking and are inexperienced in the business side of things then my advice is to find a trustworthy and experienced manager to do all the networking, promoting, funding and sales on your behalf in exchange for an agreed percentage of your net revenues.

It is very important that you are constantly connecting with your fans and making them feel a part of your creative journey, since if you ever wanted to raise funds for your projects via crowdfunding platforms such as Kickstarter, you will stand a higher chance of reaching your financial targets.

 

By Nicholas Peart

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A World Where Everybody Is An Entrepreneur Doing Something They Love

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This is an article I originally posted on Elixtacy on July 10th 2017

 

We are currently living in a time of great technological transformations. The internet has created enormous opportunities for individuals, entrepreneurs and businesses. The most clear game changer with the internet is the direct peer to peer contact it offers with all kinds of people from all around the world. It creates a fabulous opportunity to develop an online business or project in something you truly love and enjoy. In the process, you get to directly connect with many different people finding potential fans and clients who appreciate, love and value what you are doing.

 

Moving away from old Industrial Age model jobs

Currently many people are still stuck in Industrial Age jobs. These jobs are often of a repetitive nature even if, for now, they may provide a stable income and job security. And it could be argued that many people who do these kind of jobs don’t enjoy them (even if they may pretend that they do) and do them purely for the money. Yet these are the jobs most at risk from automation. These are not just jobs in the retail, manufacturing, construction, transport and basic service industries but also high skilled jobs in the legal, financial and, ironically, even tech industries (there will come a time when AI will be able to do most of the programming/data analysing jobs and create better software than humans can).

 

Tapping into your creativity 100%

When the above scenario occurs, instead of the dystopian reality that many predict, people will have a great opportunity to develop a business or project doing something they truly love. They will be using their creativity 100%. They will have to. They will have no other choice. It will be the most important “commodity” we have to offer. The alternative option is to be part of a society of “useless people” (a most disempowering term) who constantly lament about how they used to have a solid job and no longer have it due to automation. These are people who sadly haven’t tapped into their creative resources and the immense power within themselves. Instead they fail to change/adapt and are constantly stuck in the past. A very sad state of affairs but it doesn’t have to be like this!

 

The importance of using your initiative

In our current society only a small segment of the population use their initiative. Most people are crippled by fear, anxiety and low levels of self esteem to take the initiative to start their own business or project. They are more comfortable applying for a limited and dwindling supply of jobs. But one day in the future everyone may be forced to use their initiative. Yet it will be by utilising their creative gifts to their fullest capacity. After automation has made obsolete many jobs in existence our creativity will be king and the entire global economy will be full of individual entrepreneurs and startups all utilising their creativity and operating in something they love, which even benefits and contributes to society in a meaningful way. It will be a truly pure and direct sharing economy of people interacting and transacting with their unique services.

 

By Nicholas Peart

(c)All Rights Reserved