Monday, August 15, 2011

1929 v 2011: Are the Happy Days Finally Over?

This weekend I watched a documentary called, "The Crash of 1929". The similarities to the current economic malaise is worth noting.

The buildup to the stock market crash in 1929, was fueled by the increase of debt. A new way of buying goods and services had been invented in the early 1920s called 'buy now, pay later'. Before this, if you bought something, you needed savings to do it.

Therefore, many 'mum and dad' investors took the opportunity to invest in a stock market they saw had made huge sums of money for the rich and famous. People like Bert Seligman, arguably the greatest trader in history.

Stocks (shares) were always going up. All you needed to do was to put a percentage down on a stock purchase, put the rest on margin, and wait for the price to go up. Seemingly, every Barber, Shopkeeper and their dog tried their hand at it. Passenger liners even had ticker tapes on board for those wanting to keep abreast of their stock prices and to purchase more.

However, behind the scenes, an unregulated stock market allowed insiders to become devious and greedy. They formed little groups that would use their combined financial muscle to manipulate stock prices. One method was to pay-off journalists, in popular daily tabloids, to write positive stories about the companies these groups wanted to foist onto an unwary and financially ignorant public.

The rest is history. In the weeks before the crash in October 1929, the market volatility was immense. Up and down days that made the public very nervous. The establishment tried their best to dampen the increasing lack of confidence in the market (sound like last week?), until there was a tipping and the sell orders came through in massive quantities. Many in the middle-class lost everything. The Great Depression began.

Now to today, the time is more sophisticated and the financial products more complex, but the similarities to 1929 are significant.

We have too many assets being purchased with debt. The largest category is property. Property in New Zealand and the rest of the world is still too bloated in price. Properties cannot be purchased unless an overly large amount of debt is raised. Even though the market is in trouble and creaking at the seams, the property spruikers are still talking in their honey-coated language when they know something is up.

If people get sucked into this, they are liable to find themselves in extreme hardship in the near future. As it was with stocks 80 years ago, so it was with housing during the naughties (2000 - 2007). Always going up and always purchased with debt. Instead of ticker tapes on passenger liners we had, what seemed like, ten TV programs a week, selling the benefits of property investment.

Is the middle-class about to lose everything, and is the Greater Depression about to begin?

Stock markets world-wide are volatile. The ongoing European debt crisis is getting worse. France is now in the spotlight. Their banks are exposed to PIGS debt at a dangerous level. The ECB is about to go on a money printing spree that would make a 1930s counterfeiter blush. The USA requires 40% of it's budget to be raised with debt. China is relying on the West to increase consumption in order to pull itself out of a coming apocolypse. Growth, the required cog for this current system, is negative in a majority of economies.

We are about to enter a period of incredible disruption. Politicians are not giving us the correct information. Remember, they want power, they want to get re-elected. The spoils of political life are far too good to give up for a moment of truth.

Power is still in your hands to protect yourself as much as possible from the coming Greater Depression.

Gold in New Zealand dollars: $2083.49 per oz
Previous all time high: $2243.75per oz

Silver in New Zealand dollars: $46.50 per oz
Previous all time high: $59.19
per oz

The Anglo-Far East Company
The Original Private Gold and Silver Bullion Custodiann
Your reference: an-001

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