biggest bubble is about to burst

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Post on 24-Jan-2015



Economy & Finance

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The biggest bubble that is about to burst considers the bubble is risk aversion. Bonds is taking more money now that has been seen since 2007 however this doesn't reflect the reality of what is happening. Investors are like sheep and need to leave the party.


  • 1. We dont get sucked into bubbles do we? The biggest bubble since the TNT bubble WILL BURST

2. The Biggest Bubble is about to burst There is a big bubble in investments and investors are doing nothing We know the party is over We know the bubble will burst The only thing we dont know is when 3. IntroductionOf course rational investors dont create bubbles:Tulip Mania 1636 1637Wall Street 1927 1929Japan 1982 1989Dot Com 1997 2000US Housing Market 2007 2008 4. At the peak of tulip mania, in February 1637, somesingle tulip bulbs sold for more than 10 times the annualincome of a skilled craftsman. It is generally consideredthe first recorded speculative bubbleInvestors are swayed by recent eventsi.e. investors are not rational and makedecisions based on biases, not logic 5. Why bubbles?Why bubbles?Over optimism people believe they arebetter than they really areIllusion of control people believe they willknow when to get outSelf serving bias people believe what theywant to believeInattentional blindness people dont payattention to what they are not looking for 6. BlindnessInvestors have risk aversion, everything we are told tells us thatcash and bonds are safe assetsWe are told that equities over the last ten years haveunderperformed equitiesRetirement forces us to move to safe assets where there is norisk 7. The FactsBubbles are a by product of human behaviour, they have thesame patternChange in circumstance internet creationCredit creation finance availableEuphoric maniaFinancial distressRevulsionThey will continue to happen because its who we are 8. The FactsFT Money investors are in no hurry torotate from bonds to equitiesYou Gov Survey shows 71% of thoseasked wouldnt be prepared to take anyrisk with their moneyBonds have delivered over the last tenyears but growth does not correspond tothe gilt yield, it will correct 9. The FactsActual returns over last ten years FTSE AllShare 132%, Gilt Bonds 49% and Gilts 56% -have bonds out performed equities?Difference is that equities have been morevolatile than bonds but that could changeCash is DEAD and there is no life supportmachine for some time to come 10. The FactsCash:Between 1992 and 1997 inflation was14.9%, the Halifax Liquid Gold accountpaid 16.4%Between 2007 and 2012 inflation was16.5%, the Halifax Liquid Gold accountpaid 0.8%Interest paid to savers fell by 5 billion inthe last five years and will keep on falling 11. Inflation, inflation, inflationInterest rates are unlikely to change until 2017 and the bankswill not be in a hurry to pass those increases to savers, sosavers have to accept a long period of poor ratesThe new BoE Governor has clearly indicated his focus is ongrowth and not inflation, inflation is only going one wayCash can no long be seen to deliver income and inflationprotection 12. Retirement, Retirement, Retirement Maybe 30 years ago we reached retirement and died, this is now unlikely to happen Average person will live twenty plus years in retirement Investors need to stop being sheep 13. Be a contrarian investor2012 equity funds suffered outflows of Eur 6.8 billionBond funds took Eur 176.5 billion in 2012, highest levelsince 2007In fact bond funds captured 10 times the inflows in2012 than they did between 2007 and 2011 combined 14. Be a contrarian investorTHE PARTY IS OVER but investors are reluctant toleaveInvestors are fearful to leave the bubble they are sittingin the bubble is one of risk aversionIts not if, its when the bubble bursts and it will be messy 15. How to reactInvestors have to accept they are all ready taking a risk withtheir moneyCrucial that assets are diversifiedImportant that investors dont follow the herd and lookharder and deeper to get growth and incomeInvestors need to accept changes to retirement and thatinvesting is a lifetime option 16. How to reactResearch, research, research i.e. investors shouldnt just accept aninvestment, they should break it before they invest in itConsider globally away from the noise consider changes topolitical landscape in Japan, what does that mean are thereopportunities. If global bonds are dead where are there options forbond investments. Emerging markets is China really dead or isthere more to come. Resources what will be the winners forexample agriculture etc etc etcAnd finally be contrarian, be brave and hold your nerve

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