Updated: Jul 31, 2020
The subprime mortgage crisis started in 2007 when the housing industry's asset bubble burst. With the previous years' increasing home values and low mortgage rates, houses were bought not as places to live in, but as investments. It then became apparent in August 2007 that the financial market could not solve the subprime crisis on its own and the toxicity that was the subprime mortgage market spread around the globe. The interbank market froze completely, mainly due to the fear of the great unknown amidst banks. Northern Rock, a British bank, had to approach the Bank of England for emergency funding due to a liquidity problem. By that time, central banks and governments around the world had started coming together to prevent further financial catastrophe. Given what we know today, how can the financial markets continue to be in a state of a ‘Bubble’ whilst the FED continue to provide stimulus packages which are driving share ‘buy-backs’ and the sale of bankrupt stocks or IBO’s as they are being called. The inevitable outcome will be that when the FED begins to reduce their support which they will have to or risk plunging the US into as some experts have stated, ‘the worst economic crisis since records began’. Many have said that we are already looking at the beginning of this very crisis and when the markets finally react, it’s not just the US that will feel the pain, but the entire world. What does this mean for equities? Like with any crash it means market corrections, it means job losses, bankruptcies and recessions, coupled with a shrinking economy and the true effects of the Coronavirus still uncertain, we have to ask ourselves are we about to witness the ‘Perfect Storm’ of a financial crisis. Investors the world over are naturally concerned, people whose portfolios are heavily invested in stocks and shares will undoubtedly be wondering what to do next. If you are not young or rich enough to ride the impending peak to trough to peak of the next downturn it might be time to start thinking about investments that move away at least in part to the uncertainty of the financial markets and consider alternative asset classes. I have seen a growing number of requests for secured fixed income investments that are not correlated to the financial markets. Largely because the lack of correlation has meant that these types of investments have been unaffected in any adverse manner by the coronavirus or the measures taken to suppress it. If you have clients that may be looking towards or considering fixed income solutions to dilute their exposure to risk, contact us today to find out more.
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