Is a GFC 2.0 on the Horizon?

A decade can fly by pretty quickly, one minute you’re watching the news of the Lehmann Brothers and the beginning of the GFC, you blink, and it’s 10 years later.

Since the 2008 GFC, debt has been accumulating all around the world. And as is evident in Turkey, global debt could become a bigger problem than it already is.

Central banks around the world used stimulus packages to boost their economies and in Australia, it also kept us out of a recession.

For this to work, countries had to spend money, which has led to debt. With a decade-long buildup of debt, comes the glaring prospect that another global financial crisis may happen.

Are we on the verge of another financial crisis?

Just this week, the world has been given a shocking financial warning…

In this free report, economy expert reveals four ways you could cash in on the global infrastructure boom. Download now.

Canada Pension Plan president Mark Machin expressed his concern for the future, stating, as reported by the ABC:

One of the things that worries me in the longer term is just the amount of debt in the world’.

And while the world’s current debt levels are not on the same playing field that the US housing debt was in 2008, government debt is high.

As Machin states, ‘…[world] debt might not be where it was, going into the global financial crisis surrounding real estate in the US, but there’s an enormous amount of debt at government levels — whether it’s in Europe, Japan or the US, where it’s $US21 trillion at a government level.’

There’s been a massive re-leveraging [since the GFC], much more debt generally in the world, and that debt ultimately has to be paid off.’

‘…That’s one of the challenges — when you look at some government debt, it’s becoming so owned by central banks that it’s becoming quite illiquid as well’.

Have we learnt anything from the last?

Global debt has been a concern for quite some time now. September 2018 marks a decade since the GFC and analysts are starting to ask the question: Have we learnt anything?

Well, it doesn’t look like the answer will be a positive one. As global debt reached US$247 trillion in 2018, that’s up from US$112 in 2007.

Furthermore, in 2018 alone we’ve seen the collapse of the Turkish lira, and currencies continue to fall against the greenback.

And Chinese debt continues to increase.

Central banks and governments around the world have seen their debt increase exponentially since the GFC.

The issues today are very similar to the issues in 2008. Investors, central banks, banks and financial institutions have seemingly forgotten the causes of the GFC.

As the Conversation put it:

Only a decade has passed since the collapse of Lehman Brothers, and it seems the mortgage crisis and subsequent Great Recession are already ancient history in the minds of many investors, bankers and regulators.

All it took was a few short years of low default rates and good loan growth to re-create the kind of heady atmosphere of irrational exuberance that transforms staid bankers into high-wire risk takers.

For those who have forgotten, such risk takers are the the [sic] ones who caused the 2008 crisis, which resulted in the collapse of investment bank Lehman Brothers on Sept. 15 and the worst recession since the 1930s.’

And if we were to find ourselves in another financial crisis? Well, Australia likely wouldn’t be able to pay its way out of a recession once more. With rates at record lows, the RBA simply doesn’t have the tools at its disposal to save us this time.

If you are interested in a way to look out for your future, should global markets come crashing down, then check out controversial financial analyst Harry Dent’s Boom & Bust Letter. Harry predicted the 2008 GFC and his current predictions for Australia are equally grim.

This week in Money Morning

In Monday’s Money Morning, Greg discusses how about 10 years ago, Australia made the decision to develop a LNG export industry. Multinational oil and gas companies invested $70 billion to build a number of LNG export terminals on Gladstone Island, in Queensland. This brought Australia closer to the international gas price, and saw us surrender the benefits of our abundance of cheap gas. Australia’s gas price is of course moving towards the price Asian importers will pay. As always, the economic imperative trumps the environmental one…there is nothing Morrison can do to get prices down aside from restricting imports. To find out more, go here.

In Tuesday’s Money Morning, Harje looks at how stocks, rather than float upwards, generally rise or fall in spurts. If you’re going to invest large chucks of your wealth in stocks, Harje asks that you please don’t speculate. There’s nothing wrong with speculation. You could earn serious returns betting on a few choice small-caps. However, these returns are far from guaranteed. What’s the alternative? Look for companies you can understand and have high certainty of reward. Consider that even a wonderful business can be a bad investment. This is where price comes into the equation. To find out more, go here.

On Wednesday, Harje explained that with technology productivity increases, while hours worked and labour remains the same. It’s how Alibaba has been able to grow from an online directory to one of the most dominate tech conglomerates in China. It’s also how countries like China and India are going to get their second wind and continue growing at insane rates. China in particular has been planning their second wind for years now. The aim is to close the gap between Western hi-tech nations and try to lessen their dependency on imported technology. Should China or India’s ‘Made in India’ plan be successful, you could see once in a lifetime opportunities emerge. To find out more, click here.

In Thursday’s Money Morning, Harje asks the question: Why has the stock (Telstra) risen more than 20% from its low this year? Everyone was so negative on the stock just months ago. What has changed now? Buying Australia’s largest telco near all-time lows might be one answer. However, Harje believes a lot of investors might have piled simply because a rising price reaffirms the view of a bargain price. Most will base their decision on earnings. But others are buying for a whole bunch of other reasons. And because the market is not always rational, it’s common to see stocks like Telstra rise in the short-term only to fall over time. Of course, we have no special insight into the future of Telstra’s stock price. But a missed opportunity in the short-term may not matter. To find out more, go here.

In Friday’s Money Morning, Harje asks the question: Did you know the earliest stock market investors were technical traders? It wasn’t for another 100 years or so that investors started to emphasis business fundamentals (things like earnings potential, assets and debt). Rather than look at a company as the average of its past, economist John Burr Williams thought a company was worth its future earnings discounted to the present. Today, asset managers are again changing how they look at stock. Not only are they looking at charts and earnings expectations. Fundies are using mathematics to find non-correlated bets, risk adjusted returns or factor-based models. To find out more, go here.

Kind regards,

Alana Sumic,
Editor, Money Weekend

PS: Population growth is booming — find out how you can make the most of a massive global infrastructure rush in this free report. Get access now.

Alana Sumic is part of the editorial team here at Money Morning. She contributes to bringing you Money Morning each day, along with all of Fat Tail Investment Research’s many other publications.

As the Editor of the weekend edition of Money Morning Alana brings you a summary of the news for the week, and her own take on the week’s most important story in markets. She is also a writer and editor for Fat Tail Investment Research’s political publication, The Australian Tribune.

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