2016: the year of the global crash?
2016, welcome. I've been expecting you.
In many ways I've been building towards 2016 for years. Many personal and business finance decisions have taken me from a place of debt, credit cards, loans (personal and institutional), and a startup business to where I am now; debts settled, business in order, property let and generating income with as-yet trouble-free tenants. I'm ready to move into the next stage of expanding my property portfolio, and looking at my options regarding stocks and bonds. Now that 2016 is here, I've been excited in recent weeks about getting stuck in and embracing a new period of financial grown as I move towards more passive income and a timescale for location independence.
But here's the thing. I'm now worried about a global financial meltdown.
We bought our house to renovate and live in for a while in 2007. Late 2007. Yes. THAT 2007. The one right before the crash. We bought at the peak of the market, broke the ceiling price on the street, and watched as the housing market collapsed like a bad souffle. We've been hamstrung for some time by this bit of bad luck, especially as we saw big potential in the property and the area (it was due investment, new facilities and transport links etc which largely haven't materialised). We thought we'd get a good profit on the house, and that's not looking likely. The last thing I want is to make some bold financial decisions about property and stocks and then watch them devalue hugely and take years to recover.
So are we heading for a crash?
Well nobody knows for sure, let's just get that out the way first.
Several observers are pointing out that we could be though, with some outlets reporting that George Osborne may have triggered a crisis 'greater than 2007'. RBS has told investors to “sell everything", and Albert Edwards, a strategist at the bank Société Générale, was warned of an impending wave of deflation from emerging economies and that things will turn "very ugly indeed". Brent crude is hovering around $30 and expected to go lower (Barron's have predicted it to go as low as $20 before bouncing back by year end), and share prices have had a woeful start to the year.
What other red flags are there?
China is the big red flag (arf arf), with it's gargantuan economy, falling demand for credit, and capital controls (keeping money within it's borders, meaning the increasing middle classes are limited in where they can invest and so make stocks and real estate increasingly expensive) has the hallmarks of a growing bubble. If China drops, well, that saying about being in bed with an elephant comes to mind.
The PIIGS (Portugal Italy, Ireland, Greece, Spain) in the Eurozone continue to look shaky economically, and the prospect of Grexit and Brexit will make markets nervous. Grexit, in particular, wouldn't be a disaster in and of itself, but could lead to a slew of further departures. Low interest rates aren't really an option to alleviate the pressure because they're so low already, so central banks don't really have a lot of wiggle room if the economy goes down the toilet.
So how does this affect my plans?
I was fairly undeterred, but the more I read, the more nervous I get, particularly about the BTL bubble theory. Shares-wise, I'm looking at oil with a view to investing if it gets significantly lower (say, $25) and then holding out for a hoped-for bounce up to $50 by the end of the year to get back out again. Likewise with big name 'safer bets' like Apple, Disney etc, who could see a drop but are fairly decent bets to recover. My property plans will continue; I'm not immediately ready with my business plan to purchase, so will keep a close eye on the market for now, and reassess week-by-week, month-by-month.
But hey: I'm far from an expert. Just an interested observer warning: tread carefully, read extensively.
