On August 5, 2024, the US stock markets saw their biggest one-day drop in almost two years. The Dow Jones Industrial Average fell by 1,033.99 points (2.6%), closing at 38,703.27. The S&P 500 dropped 160.23 points (3.0%) to 5,186.33, and the Nasdaq Composite lost 576.08 points (3.43%), ending at 16,200.08. The Nasdaq Composite has fallen more than 10% from its record high set last month, entering a correction phase. Double-digit drops hit technology businesses first: Apple: -6%, Meta: -10%, Microsoft: -12%, Amazon: -17%, Adobe: -18%, Nvidia: -20%, Broadcom: -23%, Tesla: -25%, Qualcomm: -30%, and AMD: -37%.
This sharp decline happened after a so-called disappointing jobs report on August 2 showed that hiring had slowed down and unemployment was rising. This raised concerns about a possible recession. The unemployment rate hit its highest point in nearly three years, leading people to think that the Federal Reserve might delay necessary interest rate cuts.
At the same time, Japan's Nikkei 225 index experienced a dramatic fall, plunging 12.4% on August 5, marking its biggest single-day drop since the 1987 Black Monday crash. Worries about a stronger yen, which could hurt Japanese exports and corporate profits, worsened the situation. The decline in U.S. markets also affected European markets, with the Pan-European Stoxx index falling about 3% on August 5, showing a synchronized global sell-off.
The sell-offs have caused increased volatility across global markets. The CBOE Volatility Index (VIX), a measure of market fear, rose to levels not seen since March 2020, indicating high anxiety among investors. It surged above 50, showing extreme market anxiety.
With the weak economic data, traders now believe there is a 99% chance that the Federal Reserve will cut interest rates by 0.5% at its September meeting, a big change from just 11% a week ago. This expectation could influence global interest rates and investment decisions.
This news doesn't surprise me. I have known for a long time that politicians and the capital markets they control cannot be trusted. It has been quite a while since my clients and I moved our investments away from U.S. equities and into offshore markets and tangible assets. I am looking forward to navigating this business cycle with peace of mind. If you want to explore your investment options, consider subscribing to our free newsletter. Together with my team of experts and partners, we can help you safeguard your investments and your freedom. Now, let's dive into what's happening in the markets and your current challenges.
Have you noticed the mismatch between economic health and capital markets? Since the Fed started steadily raising interest rates to fight inflation in March 2022, all stock market players have been watching Fed Chairman Jerome Powell, waiting for economic indicators to deteriorate.
When unemployment figures fell, the stock market fell; when unemployment figures rose, stock market players rejoiced. A similar example happened during the Covid hysteria. When mass unemployment threatened, developed stock markets soared to record highs. Stock market speculators were overjoyed as economies were badly damaged.
This strange pattern is not directly blamed on capital markets but on central banks' reckless management of them through monetary policy. When governments started shutting down the whole economy without thinking about the consequences and locking everyone in their homes, central banks created a “great invention” and started printing money unlimitedly instead of economic production.
The Fed's balance sheet grew from about $4.2 trillion at the start of 2020 to roughly $8.5 trillion by mid-2023. This $4.3 trillion increase was due to the Fed buying many assets through its quantitative easing program. When inflation started to rise rapidly, he claimed that it was a temporary situation and that there was no need to intervene. When inflation reached 9.1% in 2022, the Fed declared that fighting inflation was its top priority and started monetary tightening.
The Fed claims it will normalize the economy again with a mild recession and signalled at its last meeting that it might start cutting interest rates. However, market participants are skeptical of the Fed's position and expect a rate cut due to the threat of a recession, which they believe (or want to believe) is already underway. The sharp decline in the US equity markets, especially the S&P 500, is a theatrical reflection of the collusion between the Fed and stock market speculators.
According to the Fed, the economy must slow down into a mild recession for inflation to fall. This is called a soft landing. The Fed claimed it could achieve this by playing with interest rates and market expectations and intervening in the financial markets. For this reason, falling unemployment figures, normally a good indicator for the economy, signalled bad news for the Fed. The Fed aims to reduce people's purchasing power and economic output, but at exactly the level that the Fed thinks is good. Unfortunately, the visible incompetent hand of the Fed will again disrupt the invisible hand of the free markets.
Capital market speculators celebrated every indication that the economy was deteriorating with fireworks—until it became clear that the Fed's claims of a soft landing were a fairy tale and that a hard contraction was a more realistic possibility. There is no need to feel sorry for speculators. When you lose half of your wealth in the capital markets, speculators will come like vultures to pick up the rest. I hope it won't be your retirement savings in their mouths when they swoop back into the markets.
The Japanese central bank increased its interest rate by 0.25, causing the yen to appreciate by 8% against the dollar. This pressured investors to close their carry trade positions, worsening the decline in Japanese stock prices
The recent crash in the Japanese stock market has significantly affected the US stock markets and the global financial system, especially through something called the "yen carry trade."
The yen carry trade is a strategy where investors borrow money in Japanese yen with low interest rates and then invest it in assets that offer higher returns, often in the US or other markets. This approach has been popular because Japan's interest rates have been kept low for a long time. However, recent changes in Japan's monetary policy, including the Bank of Japan's decision to raise interest rates, have strengthened the yen. Over the past month, the yen has gained about 8% against the US dollar, trading around 143-148 yen per dollar.
As the yen strengthens, this strategy becomes risky for investors. They need to repay their yen loans, leading to a large sell-off in global markets. Investors are forced to sell their high-return investments, creating more volatility and pushing stock prices worldwide, including in the US. The rapid rise of the yen put extra pressure on investors to close out their carry trade positions, worsening the fall in Japanese stock prices.
After the Nikkei's fall, U.S. stock futures dropped sharply, with the S&P 500 futures down 3.1% and Nasdaq futures down 4.7% in early trading on August 5. The sell-off extended beyond Japan and the US, affecting European markets, opening lower in response to the chaos, with major indices like the FTSE 100 and DAX dropping over 2%.
The main reason for the interest rate hike is to prevent the yen from losing value against the US dollar. The yen's decline made imports more expensive, increasing Japan's inflation. The Bank of Japan (BOJ) aims to strengthen the yen and stabilize prices for essential goods like energy and food by raising interest rates.
The Japanese economy has shrunk in two of the last three quarters, showing that previous monetary policies may not have been enough to boost growth. The BOJ believes raising interest rates is necessary to support the economy while trying to control inflation. As if the BOJ had managed the Japanese economy competently.
Economic cycles consist of phases where the economy expands, reaches highs, and then contracts sharply. This occurs due to the manipulation of interest rates by central banks, which stimulate artificial growth through monetary expansion policies
A major recession looms as America's business cycle approaches its latest downturn. Speculators, who once viewed the worst economic indicators as signs of new records, now seem poised to offload their holdings. At this critical moment, the BOJ recognized it had reached a tipping point and could no longer sustain its negative interest rate policy. It rapidly raised interest rates in an unexpected move, effectively closing the door for carry traders seeking easy profits. Realizing that the era of easy credit was over, carry traders took their profits and awaited the next inflationary cycle.
You can be sure that these traders and speculators will return to the market once asset prices in the capital markets plummet and central banks resume quantitative easing to bail out large corporations and support politicians during elections. However, they must first wait for the market turbulence to intensify. This entire business cycle revolves around central banks' ability to persuade the public that they can manage the economy effectively.
The business cycle consists of phases where the economy expands, peaks, contracts, and recovers. Central governments circulate more money and lower interest rates during expansion to stimulate growth. This often leads to inflation, where prices rise, and the purchasing power of money decreases. Governments raise interest rates to combat inflation, making borrowing more expensive and slowing down the economy. This can lead to a recession characterized by reduced economic activity and higher unemployment.
To combat a recession, governments usually reduce interest rates and infuse more money into the economy to stimulate spending and investment. Throughout this cycle, the value of ordinary people's assets and purchasing power erodes, while real estate values often increase as they hold value better than cash during inflationary periods.
There are numerous offshore investment opportunities with a second passport. High-yield real estate investments can provide consistent long-term profits, regardless of the economic cycle phase
First, I hope you've been following me for a while and have taken steps to invest your money in tangible assets. If you haven't done so yet, it's time to change your perspective. You need to start by accepting that you can never fully trust politicians. Governments and central banks often focus on manipulating elections, appeasing organized voter groups, or creating economic rents for large interest groups.
Public welfare is mostly just political rhetoric and rarely becomes reality. Politicians and central banks who claim to manage complex economies effectively do little more than manipulate public expectations from one business cycle to the next.
If you accept this harsh reality, developing an exit plan is next. Politicians can be ruthless with your wealth and freedom because you have no alternatives. Therefore, obtaining a second passport and having an offshore investment plan can protect your wealth and freedom while making politicians at home more cautious.
You can access a wide range of offshore investment options with a second passport. Real estate investments, which are diverse and high-yielding, can provide long-term profits regardless of business cycles. There are many attractive options for investors in countries such as Panama, Brazil, and Paraguay. Investing in real estate offers a wealth of benefits, especially when combined with Citizenship by Investment programs. Imagine owning a home with a breathtaking view and gaining a second passport at the same time. In countries that attract strong interest from foreign investors, your property's value is likely to appreciate, and you can enjoy a steady stream of rental income if you choose. This combination makes real estate investment not only a pathway to financial growth but also a gateway to new opportunities and experiences.
Investing in precious metals like gold and silver, which tend to gain value during inflation, is one of the oldest strategies for good reasons. Save precious metals to hedge against inflation and currency devaluation and protect your wealth during economic downturns. Gold and silver are extremely liquid assets that can be quickly turned into cash due to their inherent value and global recognition. I believe that it is essential to hold a portion of your wealth in precious metals, and keeping them offshore in a secure location is a wise choice.
Our trusted partners offer exceptional service in a safe jurisdiction, making it an ideal place for safeguarding your assets. With top-notch security and five-star service, our trusted partners ensure peace of mind for all your precious metal investments.
Additionally, self-directed IRAs, which are advantageous for American investors, are available to secure the savings of many individuals. You can also invest in agricultural land, timber, farming, art, and other tangible assets that will remain robust during times of high inflation and crisis.
Are you aware of offshore trusts and foundations where you can manage your wealth in offshore accounts with tax advantages, ease of investment and immunity to financial volatility? Many offshore jurisdictions offer legal frameworks that are tailored to protect foreign assets. Panama, The Cook Islands, Saint Kitts and Nevis, Belize and many other countries are notable for their robust financial system to protect your wealth and offer many tax-related advantages.
If you don't want to see your hard-earned wealth disappear drastically in a few days or be forced to "contribute to society" through taxes, create a Plan-B for yourself and your family right now
Uncertainty is here to stay as the world goes through turbulent times. We're facing critical elections, ongoing wars, and rising tensions over new conflicts, all while data shows a weakened global economy. In this unpredictable environment, financial markets are unstable, and investors are cautious about the future. Now more than ever, people and businesses need to stay alert and ready to adapt as they prepare for whatever comes next. With so many challenges at hand, the only sure thing is that uncertainty will continue.
If you don't want to see the wealth accumulated over the years disappear dramatically in a few days or be forced to "contribute to society" through excessive taxes, the best thing you can do is help yourself.
For over two decades, I have helped many clients prepare a Plan-B that suits their priorities. Expat Money is ready to help you discover the investment strategy that best suits you with its professional team and accredited partnerships to protect your wealth and freedom. There is no better time than today to help yourself. I would be delighted to assist you on your journey.