Two More Bubbles

Monday, November 30, 2015 | Leave a comment

Dr. Robert Wiedemer, PhD in Economics from the University of Wisconsin, wrote the best-selling book Aftershock. In it, he outlined his predictions of a series of economic bubbles that would burst causing horrific trouble for the individual investor. Your money has been greatly affected by the real estate bubble bursting. Real estate values plunged 22 percent to 50 percent in various parts of the United States over the last decade. The stock market has faced three declines of approximately 50 percent since 1989. This economic bubble has burst more than once and may not be over. According to Dr. Wiedemer, two bubbles remain inflated that may burst in the near future.

The first is the default of the US Treasury bond. If government bonds default, the United States will not be looked at as a safe haven for the global economy. Trust will be broken, and the endless demand for purchasing our government debt may diminish. If we cannot continue to borrow our way out of our troubles, America may face very tough times.

The second overinflated bubble that may burst in the near future is the US dollar. If the dollar collapses, our money won’t be worth the paper it’s printed on. What will happen to your money if the US dollar collapses? Let’s take an inventory of your personal assets and project them into this type of a financial catastrophe. Your stocks and equity mutual funds may drop in value because of the systemic risk of the stock market itself.

Even though the prices may drop because of the volatility of the stock markets, the underlying companies may still do well. For example, even in the toughest times, there may still be a demand for energy, gasoline and other petroleum products. Electricity and the Internet may still be used. You may still need to buy toothpaste, soap, razor blades, and deodorant. Even in the toughest of times you still have to eat. Companies like Campbell Soup, Colgate-Palmolive, and Exxon Mobil may continue to be there, even if the dollar collapses. The question is, what will the companies be worth intrinsically? I think it’s fair to say that most companies won’t go out of business; therefore, your money may be safer when invested with dividend paying, conservative, blue-chip stocks.

Company chart

The newspaper clipping pictured in this article, written in 1930, is a sample list of stocks that seemed to ignore the great depression following the stock market crash of 1929.

Another possible hedge to the US dollar collapsing is to invest some of your money in foreign currencies, such as the Swiss Franc. Investing in solid currencies of commodity-rich countries may be able to hold the value of your paper or flat currency. Commodities such as gold, silver, wheat, oil and energy may also be a place that may hold value against a collapsing dollar. Real estate is a limited commodity that also may be able to retain its value. As you can see, there may be investments that you own that could hold their value.

Don’t be overcome by fear, but instead be wise in how you diversify your assets into these types of investments listed above. Dividend paying, blue-chip stocks, real estate, commodities such as gold and energy, and foreign currencies may be a few investments that may help preserve your hard earned cash. We don’t know what the future holds, but we do know who holds the future. Now is the time to do what you can with what you have, have faith in God and this great country of ours. God bless America and God bless you with wisdom in your financial decisions. For help in diversifying your investments, contact your wealth advisor today.

**Investing entails risks, including loss of principal. Diversification does not assure a profit or protect against loss. Investing outside the United States involves risks, such as currency fluctuations, periods of illiquidity and price volatility.  Dividends from income-oriented stocks may be reduced by changes in a company’s dividend policies and the capital resources available for dividend payments by a company.  Investing in real estate involves risks, such as environmental liabilities, difficulty in valuing and selling the real estate, and economic or regulatory changes. Investing in commodities is speculative and can be extremely volatile. Commodities prices may fluctuate rapidly due to a variety of factors, including changes in overall market movements, domestic and foreign political and economic events and policies, war, acts of terrorism, changes in domestic or foreign interest rates and/or investor expectations concerning interest rates, domestic and foreign inflation rates and investment and trading activities of mutual funds, hedge funds and commodities funds. Prices of various commodities may also be affected by factors such as drought, floods, weather, livestock disease, embargoes, tariffs and other regulatory developments. The prices of commodities can also fluctuate widely due to supply and demand disruptions in major producing or consuming regions.

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