“It’s like déjà vu all over again.”
Legendary N.Y. Yankees catcher, Yogi Berra
The most useful definition of insanity (though not one Albert Einstein probably really said) is: Doing the same thing over and over again and expecting different results. I’m reminded of this once again after hearing what multi-multi-billionaire hedge fund manager George Soros told an economic forum in Sri Lanka last week.
As Soros views the world’s current economic ills, we’re revisiting almost the identical problems we had in 2008. The difference is that today we’re looking to one particular nation as the source of the tumult – China.
This crisis is no joke. As early as January 6th, Anusha Ondaatjie and Adam Haigh, in an article for Bloomberg wrote, “Almost $2.5 trillion was wiped from the value of global equities this year…” which, given that there had only been three trading days in the year to that point, is staggering in its implications.
Global currencies, stocks and currencies got hit by the financial equivalent of an AK-47 after a devalued yuan fueled investor concerns over the Chinese economy’s shifting emphasis from investment and manufacturing toward consumption and services. Extreme losses caused Chinese stock market trading to stop twice last week; on Thursday for the entire day.
This even after the People’s Bank of China pared interest rates to record lows and the Communist Party injected the economy with billions of dollars. The problem: Economic problems are almost impossibly difficult for a nation to fix once it devalues its currency, which China has done repeatedly in the pasts several months.
Soros told listeners in Colombo last Thursday that the current economic environment is reminiscent of another disaster. “I would say it amounts to a crisis. When I look at the financial markets there is a serious challenge which reminds me of the crisis we had in 2008.”
As the world’s second-largest economy, China’s economic woes can’t help but affect other economies – especially those who’ve profited for the last several years through their exports to China. Australia’s is one such economy; the Australian share market slid over two per cent for a second time in recent weeks, bringing investor losses to eighty-seven billion Australian dollars during the first four trading sessions of the year.
But the aftershocks of China’s devaluation also hit the Dow, which quickly lost two hundred points. So if you’re searching for individual stocks not affected by the Chinese currency devaluation, good luck! Your paper investments are facing some mighty strong headwinds.
In addition, for those of us over fifty, it may not matter if one day the market fights its way back. We simply don’t have time to wait it out. If you’re within ten to fifteen years of retirement, ultimately the problem boils down to protecting savings you’ve worked hard for your entire life against destructive forces that don’t care if you have a place to live or food to eat when you’re seventy. I’ve said it before; only precious metals have the financial heft to withstand these kinds of market storms.
Gold is still undervalued, but predictably it’s now inching up as markets flail. But – and this is key – it’s still affordable, whether you want to buy direct or protect your existing IRA, 401(k), 403(b) or other qualified account by rolling it over to a retirement account that lets you hold gold.
Regardless of what happens in the Chinese economy, you know the Chinese Central Bank’s still buying up gold. In the meantime, hoping and praying for your stocks to correct is no way to build your portfolio – or secure your future.