Dow tumbled 700 points!! What Next?


Dear Investor

In continuation of the efforts to provide you updates on Financial Markets…..
As an Adviser and Investor, one question we always keep asking is What Next?

Day by day and month by month, crisis is getting deepened. First it seemed, only US is in crisis, later Europe and Britain joined it and now entire world is in deep financial crisis. We have also political and regional crisis worsening the financial crisis.

It started with Housing sector in US and now spreaded to world across. Not sparing even strongest economy on planet that is China. Recent reports on Wall Street Journal shows that reverse migration has started and may turn into social unrest if situation worsens further.

Upon reading expert’s views, it surely confirms one thing that the crisis is for sure not a short term. It is here to stay longer than average investor thought of. Consensus is gaining momentum that we might enter into Great Depression II.

What was Great Depression 1 ?

Like we had wonderful, booming past 7-8 years. Great Depression also followed booming 1920s. It started in 1929. It was terrible tenure indeed. It is said that in 1929 dump money(Small Investor) lost their shirts, in 1930 real money(HNIs, Institutions, Brokerage Houses) lost their shirts and in 1931 real smart money(Big Banks, Govts) lost their shirts. It did not spare any one. Most wealthiest of 1920s were selling apples in street. More than 1500 banks went broke. Govt declared Banking Holiday.

Are we into same period again? Consensus is gaining. What should one do to remain afloat? Cash is King in depression. As price falls mercilessly because of huge supply and no demand, prices tank even 90% and 95%. Do not put your money at risk to earn higher return because you may loose money first and second you need not to do the same as prices of commodities are falling down to earth. When inflation turns into deflation and you get goods at cheap rates, its a return on your saved cash!!!

Do we have evidences and events pointing to the Great Depression II?

Yes. look at commodity prices. Price of Sulphur was $700 tonne in Aug, it is quoting at $65 now. More than 90 % down from peak. Scenario is quite same for rest of the commodities. Look at equity markets, we are into recession since Jan 2008,confirmed by NBER. Stock markets have crashed from 50 % to as high as 72 %. Shanghai is down by 72%. In Great Depression 1, market bottomed out in 1932-33, 3rd year from the crisis started, not in first year. Here,we are in first year and have crashed at least to half across the world.

So, cash will be the king in next 2 years. Save more. Spend less.

Dhaval Shah


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