WHAT DOES IT MEAN FOR INVESTORS?
On Thursday 11th June, the Dow Jones and other American indexes were overcome by extreme selling pressure surrounding political and macroeconomic situations in the United States.
WHAT EXACTLY HAPPENED?
In answering that question, we need to look at it in a little more detail.
The United States, as the worlds largest economy, has been printing money in increasing amounts to help lessen the blow of the Covid-19 pandemic on the industrial indexes, not limited to the Dow Jones, NASDAQ, and SPX 500.
However, as this becomes more mainstream news, more and more investors are reading between the lines and noticing the growth of the last month has been purely artificial.
This all points to the bears starting to appear from hibernation, as they prepare for this artificial bull market bubble to burst.
SO, WHY IS THIS HAPPENING?
There are a multitude of reasons that analysts and alike can attribute to this sell off starting. There are several factors, but one of these is US corporate debt to GDP ratio. As we can see throughout history, every credit cycle peak happens every 10-15 years, with this last being in 2008. In May, the US had the highest corporate debt level on record. Why has this happened?
Since 2009, 90% of the NETT demands causing the bull market were share buybacks. More than pension funds, households, and insurance companies. Companies are doing this so it artificially pumps up their stock price, it makes them look like they are making more money, and gives a charger Price differential per share.
Another sign that the bubble is about to pop can be attributed to recent offerings made by large banks. Wells Fargo is one example. They are filing for $13 Billion worth of mixed shelf offerings. This in itself is normal, however reading the small print you notice worrying trends. The money raised will be used to repay maturing debt obligations, reduce outstanding debt, and invest in the company’s subsidiaries. This is a total 360 degree turn of what they were doing in the first place.
WHAT DOES THIS MEAN FOR INVESTORS?
Pension funds, institutions, and insurance companies alike are looking at ways to lessen the blow on multiple fronts:
1. To stem the losses of their holdings on a large scale.
2. To prevent investors requesting a mass withdrawal.
3. To maintain their “face” in the public eye to encourage new investment.
We are seeing a gradual shift to alternative investments, ones that do not rely on political, high-end decision making from unaccountable individuals.
Perhaps better is where the investment has a fixed asset that underpins it. This of course could be the case with property, art, prestige cars or other assets such as yachts. Berkeley House case offer this type of product through ‘The Yacht Bond’.
Indices going mad. How do investors secure income?
As always entering into any form of ‘investment’ requires due diligence.
It seems this again points to the benefits of utilising the services of a boutique regulated alternative asset managers who specialise in these types of opportunities, effectively providing some degree of increased assurance that investments, whilst not removing all the risk, are managed correctly. Berkeley House Capital is one such boutique Company.
If you are a Wealth Manager, IFA, Family Office or Finance Professional and would like to know more about our investment products and/or services, send us and email to arrange a convenient time to discuss.
If you would like to discuss any aspect of this note please feel free to email: charlotte@berkeleyhousecapital.co.uk and one of the team will be very happy to arrange call with you.
www.berkeleyhousecapital.co.uk
12 Hay Hill, Mayfair,
London. W1J 8NR
United Kingdom
+44 (0) 207 863 7507
1. Berkeley House Capital is an Appointed Representative of Alternative Asset Management Ltd which is authorised and regulated by the Financial Conduct Authority (No. 450404). Not all of our activities are regulated by the FCA, further details are available from us on request.
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