Storm warning: what to expect on Monday (tomorrow)

I’ve been taking more than a few e-mails today. Not from fantasy and science fiction readers of my novels, as is my usual wont as an author – but from more shadowy types who know me better from my previous existence as a wordsmith of the Financial Times, and then part-founder of one of the financial sector’s most successful research services.

This is a world I happily resigned from in June of 2007, stressed out and predicting a financial crash just around the corner. Most people in the financial sector thought I was bonkers to throw my job in for the life of a starving science fiction and fantasy author. They thought the party would never end. I, on the other hand, believed they were insane staying in an industry heading for an explosion. Three months later there was a run on Northern Rock bank in the UK, and the rest, as they say, is history.

The usual maxim for those working in finance, even as an editor/publisher and then research director, is: ‘those who say do not know: and those who know do not say.’ But I haven’t got any real skin in the game anymore, so, to those who have been asking me what my thoughts are on what’s going to happen now the USA’s credit rating has been downgraded…

TOMORROW

I would say a 40 per cent chance that trading will be suspended on all the major US exchanges following a global stock market sell-off without equal.

This isn’t the bad news. The real bad news is that with the USA split down the middle between the two main political parties, and the ‘trust no tyrants’-system of checks and balances making sure you’ve got two rival houses at each other’s throat chained to a lame-duck president (not Obama’s fault: he inherited much of this mess), things are going to get a lot worse before a single force can get enough steam up to sweep the deck and set about really fixing things. And I mean a lot worse.

At the very least, I would put the chances of a double-dip recession in the USA (first serious bite early 2012) at 90 per cent.

MEDIUM TO LONG TERM

Europe is going to go one of two ways, forced into it some time during 2013.

I would put the chances of the weaker European nations (Italy, Greece, Spain, Portugal, Ireland) – aka the PIGS – being forced to abandon the Euro and return to their native Lira, Pesos etc, at around 40 per cent.

The more likely alternative – which I would put at 80 per cent, is that Europe will go for a T3 solution, which is to say the Euro currency will split tripod-fashion into three tiers, 1, 2 and 3, with newly minted national-oriented Euros able to float between them. Tier 1 will be Germany, France and the Nordics. Tier 3 will be the PIGS. Tier 2 will be everyone else. Countries will float between tiers as needed, the European Central Bank will set recommended economic policies for each of the three slices of the cake – interest rates etc, and the great Federalist wagon will roll on unabated, with the Brusselcrats able to claim their steady hand on the tiller managed to save the day.

There’s a 70 per cent chance that most of the EU will go into a double-dip too (if you’re in Spain, Greece etc, you already are, of course).

WHAT YOU CAN DO TO PROTECT YOURSELF

1. Move your money to the more solid banks with strong capital reserves. I won’t say which banks are going to go to the wall, because they have lawyers, and I only have fantasy novels now with which to protect myself. Not an equal fight. If you’re in the UK, I would suggest keeping your loot in government-owned banks like RBS and Northern Rock.
2. Don’t sell stocks in US/European firms now unless you really have to (have to, I define as you’ve been laid off and are starving). They’re going to lose a lot of value, and if you wait 5/10 years, they will be back where they should be value-wise, unless the firms you’ve picked go bust. But you’re not a fool, you’ve got a diverse portfolio, right?
3. If you have kept your powder dry, the next few months will be a buying opportunity for stocks. Go for the defensive ones, to keep your risk profile shark-like and stable in the water.
4. If you have investments in Chinese stocks, get the fuck out while the going is good. NOW.
5. Don’t buy gold or metals. The time to do that was a year ago. Unless you think my predictions are all rose-tinted glasses, and that Mad Max-living is around the corner, in which case, buy every last gold ingot. And bullets. And bottled water and canned food.
6. If you’re a UK ex-pat in Europe, try and keep your money in British banks in £ until 2014+. You probably don’t want to the sucker left holding PIGS-Euros (a case can be made for the opposite of this, though. That the Germans will give the PIGS a nice big kiss-off valuation before they annul the marriage. Hmmm. Don’t think so).

And the normal caveat. I’m not your lawyer or your financial adviser. Act on the above entirely at your own risk. I accept no liability for my soothsaying etc etc…

One Response to “Storm warning: what to expect on Monday (tomorrow)”

  1. August 6, 2011 at 8:21 pm #

    how about some advice for the unemployed/balance-zero types? should we keep trying to pay bills, or are we better holding the cash since things are going to tank us out of our homes/cars/etc no matter what we do?

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