How To Protect Yourself For The Next Global Crisis

Diederik Schmull, an independent investment consultant after 40 years as a stockbroker with Morgan Stanley, Credit Suisse and Baker,Weeks & Co. predicted the Lehman-crisis. And now he has some bad news for you, again: the next global crisis is going to be even bigger.

The world credit expansion is in its endgame. Central banks cannot prevent another crisis, they are out of bullets. In 2008 the banks were highly indebted but now it’s a government debt plague that will destroy the world, says Schmull. Countries will go bankrupt, it’s inevitable.

Easy monetary policy all over the world has made no significant economic growth, only more debt. Global economic growth has fallen until the lowest level in 25 years. Nominal global GDP was negative for 2015: – 5%. This only happened two times before: 1982 and 2009. Coincidentally, the Fed raised rates in 1982, not long after the Federal Reserve was obliged to reverse the rate hike.

This means risk is rising all over the world. Corporate debt is rising, not to invest but to buy back shares, make big deals or speculate. Every credit expansion is doomed to fail at some point. But this one will end brutally. The world is broke, flat broke.

There are many problems around the globe:

• Global growth keeps falling
• China almost certainly have to devalue it currency
• The United States is almost in a full bear market
• Europe is in a lost decade
• Japan is in a lost generation
• Emerging markets are closely tied to the carnage from commodities

Timing the new crisis is useless and not important. Return of capital is more important than return on capital.

What will be the trigger?

Things will go wrong when collateral diminishes in value, probably fast. This will bring on more margin calls and everybody will be forced to sell. Your assets can decline 50% to 70% overnight. When this happens, trust won’t exist. You may not have the counterpart relationship you thought you had.

History says high yield debt is always right. They have a sixth sense to know what’s coming.Smart money says bad times are ahead. They see low economic growth, low inflation or deflation and extreme geopolitical tension.

So how do you project yourself?

Cash, preferably American dollars. Take on as little debt as possible, don’t buy inflated assets like stocks and real estate. Buy bullion gold as an insurance, just like all the central banks are doing. There are 2 important reasons to own gold: distrust in a counterpart relationship and the paper money system as a whole.