Early Indicators of the next GFC

Michael Dee GFC, Uncategorized

When we boil it all down, it was greed and the escalation of greed which was the root cause of the GFC.

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The re-emergence of a number of Greed indicators show a worrying trend. Some of these are already present, some are occurring currently and yet others still developing. Over time we will track the occurrences as they unfold.

Our early indicators are as follows:

  1. A reduction of Third world aid by the First world. Recently the Australian Government cut foreign aid – present and ongoing.

  2. Heightened returns in market without basis – present.

  3. Investing in heightened market on a whim or a feeling – beginning

  4. Companies not preparing for medium term – this follows on from points 2 and 3.  Companies don’t resolve internal issues which brings laziness to the culture and operations. This indicator is building now.

  5. Reliance on tourism. Where reliance is too heavy it brings laziness and a lack of effort to create productive industry. Consider Greece versus Vietnam which established a manufacturing base as well as in tourism. Whereas Greece established…. beaches?

  6. Political instability – variously witnessed and increasing.

  7. The rule of law put aside, and the rule of thumb introduced (e.g. Greece, will do whatever we want!). Present!

  8. Moral downturn. Where people take from each other for no effort this is a reduction in morals. When it’s everyone for themselves inside and outside of organisations.  When there is little or no teamwork, unity and oneness.  This is present and building.

  9. Loss of truth in business/political/religious leaders – an outcropping of the points 7 and 8 above. We are seeing this exposed more even in Australia as we speak – but we are not alone. This is present and building.

  10. Despite free trade, there is increasing protectionism – macro greed.   Present and building strongly.

  11. Difficulties in crop cultivation – as a result of a lack of care about the environment. Pollution and other environmental factors (caused by greed) mean that crop cultivation is now a considerable issue. Its effect is to cause an increase in prices and food shortages. Present and building.

  12. Less obviously greed based, natural disasters are increasing. This causes a diversion of funds – from the home country and from abroad.  By their nature they are unplanned and cause shortfalls and pressure in the home country.  With the increase in the number of natural disasters this leads to eroding confidence because there is recognition within people there are things they can’t control.

Something is going to happen

All of this means that fortunes made on a lie will be lost. Unfortunately many innocent investors will be affected.

At pivotal times such as these it’s important to remember that our Geo-political view may or may not be right, but one thing is for sure greed is building! Whether more positive or negative this significant issue will have share price effects. Knowing when to sell is invaluable.

What do we do?

We follow the changes in our Pythagoras Investment Timing Indexes. They offer a mathematical understanding of the stock market through volatility, which show that price sensitive events are predictable from changes in Volatility (i.e. in advance of price moves). These changes lead to buy/sell recommendations.

We recommend a sell when the market/stock is at risk of going down, or no-where. At these times we recommend investing in cash, and await the buying opportunity. When the market/stock is less risky, and it’s going to go up, we reinvest to profit.

Conclusion: The key to making money is selling.

The key to making money in any market is selling before any negative event. Pythagoras generates the sells before the events with share price effects – its proactive not reactive.

Investors know it’s rare for all stocks to go down all the time, all at once. Even in a bear market there are upward moves to profit from – if you have the right Buy/Sell recommendations.

Therefore Pythagoras can make money in any market regardless of the investment environment – in fact its best in the tough markets.   We worry less about the events and their timing and focus on Volatility changes. At Pythagoras we follow changes in Volatility which precede the events. This places us at the forefront of investing.

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