2020 Pivot Strategy It’s Time to Change Direction

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I had been searching for a good and strong opening statement to get this very important message to you with a bang. I spent nearly a week thinking about it and then a thought occurred to me. Just say it. Don’t try to make sure it sounds politically correct or gentle… just say it. I have always “just said it” and I have never been one to care much about what someone might think about my words because I speak the truth, based on fundamentals and critical analysis of the market. So I don’t know why I was hesitant this time around, in following my usual style of “just saying it”- but anyway… so here it is.

Regardless of which industry you extract your earnings from. Regardless of what you do for a living. Regardless of whether you are an active investor or one that’s waiting to become one.

Regardless of whether you’re rich or poor. You have to pivot and pivot NOW.

I’ll explain why.

The irrationality of the market is at an all time high. Stocks that should be falling are rising. Markets that should be crashing are going up in price. The narrative that should have become more transparent by now, is continuing to fudge the truth, keeping people caught up in this loop of “problem-reaction-solution” driven fear.

I am reminded of the same happening, albeit to a much lesser degree, during the 2007-2008 GFC. I particular use 07 and 08 instead of 08 and 09, because I want to draw your attention to the genesis of that crisis which began in 2005, became visible in 2006, became obvious in 2007 and became real in 2008. Back in 2007, there was a small, select group of analysts that could see the writing on the wall. They had the vision and foresight to bet their funds on the impending crash which they could see 18 months out. The market, being the stubborn and irrational ho-hum, kept going in the opposite direction to the point where analysts like Steve Eisman (a.k.a Mark Baum from the movie Big Short) and Michael Burry (the very first person to bet against the mortgage market) came dangerously close to a margin call that would have seen their entire positions (valued at billions) wiped out.

A very similar situation is emerging now. The level of exposure against a tremendous shock to the entire financial system is no longer a possibility. It is a near certainty. However, countries like Australia, New Zealand, The UK, Canada, Singapore, The US, Mexico, Indonesia and a few Scandinavian countries, are NOT likely to feel that shock as dramatically as other nations I haven’t mentioned would.

The reason for this is something called a Dollar Swap Line. Now less than 1% of the 1% have heard of this and even a further 1% of that group is likely to know what I’m talking about. You can try it.

Find the most educated person you know that is in the banking or finance industry and ask them if they know what a dollar swap line is or how it works.

A dollar swap line is an “unlimited”, yes, unlimited, line of credit that the US fed grants to certain allied nations that agree to the United States’ empirical and geo-political terms and conditions.

They say its limited to $450 billion, but its not. This swap line is offered in USD to partner nations so that they will have US dollar reserves in their treasury, to be able to meet their USD obligations to the US and its other partners or anyone else that the partner nations trade with, in US dollar as the base currency (which is 99.99% of the world market because USD is still the world’s reserve currency).

India, Russia and China, obviously don’t have such a swap line and nor will they ever get one because of the geopolitical terms and conditions attached to these swap line agreements. Something these nations will never agree to.

Which is why, you would have read several months ago, that they have decided to now trade in their own currencies, bypassing the USD and with it, the need to have any reliance on the USD as a base/reserve currency.

Obviously the US didn’t like that. But its Russia. You don’t ***K with Russia without consequences.

So the countries that have a USD swap line, are obliged to support the US narrative, in every way, shape and form and do so with passion and determination.

The swap line works on a 7 day or 84 day loan term and the best part is, that it never gets settled because the draw down is simply recycled between the two term periods. Draw down for 7, then re-draw to 84, then back to 7 and then over to 84 again. It is so messed up, its worse than a dog’s breakfast.

Which is why, I get really mad about the notion that all these stimulus packages are eventually going to have to be paid back by our grandchildren. Which is ridiculous because this money is being created out of nowhere, so no-one should have to pay it back, certainly not my kids or their kids or yours for that matter.

Anyway… back to the swap lines.

Why should you care?

Firstly, if you are still removed from the fact that we live in a globalised world and everything is connected to everything else, then its time to shake yourself out of the state of slumber. The shutting down of the Tiwai Aluminium smelter in Southland in NZ, happened because its owner, Rio Tinto (an Australian company), foresaw challenges with export revenues from nations that would be the biggest consumers of the aluminium that came out of that smelter. The biggest purchaser of that being China.

So because of a trade issue between Australia and China, drop in demand due to the covid situation, nearly 1,500 people will directly lose their jobs and based on a simple permutation of 1.8, another 1,200 could lose their jobs due to the impact of the plant closing down. So understanding geo-politics is key.

This is one lame example but there are 100s more which I can’t be bothered linking into this piece – do some work yourself.

Look it up. Hint: Turkey (begging for a US Swap Line), Russia (The genius watching everything and laughing out loud), India (Ramping up Manufacturing), China (Everyone wants to hurt them and they’re willing to hurt back), Indonesia (Gold), Argentina (Gold) – find out why these countries are important and what’s going on with them right now that is a major geo-political hot soup.

If you want to be an investor that is constantly ahead of the pack, educated, smart, informed and RWA positive, then you’ve got to get out of your comfort zone of thinking you can rely on news reports, media commentary and the neighbour’s opinion to succeed as an investor – especially in a market like it is right now. Just won’t happen. So its time to wisen up and understand the global landscape and get out of the comfort of your locality (be it suburban, regional or national). There is a world out there that is just as much connected to the world you’re in, as your hands are connected to your body.

So you should start caring about the geo-politics, because the 15 nations that have a swap line agreement with the US, put together, are also responsible for shaping some pretty powerful legislation, which, is then handed down by institutions such as the IMF, United Nations, The WHO and so on – that everyone tends to listen to as though they are the Holy Trinity.

There’s a lot of misinformation about the current market situation. Many say, its going to be a V shape recovery. Some say, its more like a U, others say… no no… its going to be a W.

Personally, I couldn’t care less about the alphabet that best represents the recovery curve. I know for a fact, that be it a U, V or W – it won’t express itself over anything less than 5-7 years or maybe even 10-15 years if I’m to be more strict in my calculations.

Meaning, for things to get back to pre-covid levels (which was quite shit in its own way), in my estimates, it looks more like a 5-7 year recovery cycle.

Even then, many industries will not come back to their previous level of momentum or possibilities. Many people will reduce consuming certain services. Many industries will have to pivot and pivot hard unless they start now. New Job Titles will be created (e.g. Remote Training Coordinator), and many normal Job Titles will be gone (e.g. Receptionist or Office Manager or Marketing Manager).

Many industries that are directly related to the world of real estate, finance or banking will be changed in ways that are difficult to imagine.

Real Estate Agents, Mortgage Brokers, Insurance Agents, Financial Consultants etc. – all you guys are exposed to major risk events on the horizon.

I don’t say this to spook you out. Do your own research. More and more financial institutions will be moving to machine based systems for decisions around lending and valuations, to automated suggestions to customers for what they should or shouldn’t have, in terms of financial products, insurances and services that go with it.

This is already happening in many countries. For instance, CBA in Australia has indicated moving to more automated decision making system in some of their risk based products.

Given the naivety of customers, when financial institutions start throwing incentives into the mix (as they do), the end customer has little reason to make contact with a broker, unless of course the broker has some sort of a magic pill that makes it worth remaining in a “one to one” business… with limited scalability and growth prospects for 0.7% in commission from loan draw-downs. Think about it.

In addition to that, the current non-commercial banking market being in a state that’s akin to a serpent eating its own tail, you have a lending environment that is unlikely to have enough steam as it once did pre-2015.

As for real estate agents, I mean… guys… come on. You should have already recognised the urgent need to diversify and create additional streams of income. Yes, the market is still steaming ahead. But make no mistake, it is doing so without any fundamentals. So unless someone is planning to rewrite human psychology, economic principles and twist the “invisible hand”, there’s no way, this madness and irrationality can last longer than 6-12 months (if that). What will you do then?

If you have a job now, start thinking about how exposed you are (directly or indirectly) to the risk events on the horizon. Don’t just think in terms of “will I have a job in 6 months” because your employer may look at cut backs… also consider “will the company I work for, still be in business, 6-12 months down the line?”.

Look into the industry you’re in. Look at which other industries are either consumers or suppliers to your industry. Then try to understand whether either side of the equation (consumers or suppliers) has any structural weaknesses within the economics that drive transactions in those two sides of the equation.

If yes, you’ve got to pivot.

While you have a job, it will be wise to consider diversification so you have a bit of a bridge between having a job, to starting a new revenue stream and the typical lull you’d expect in between, as you transition from one to another.

Don’t wait for the bad news on a Monday morning where your company announces job cuts.

Savings aren’t going to help you beyond a certain point. Praying, well praying always helps… but even God only helps those who help themselves. If you have been praying, then it won’t be crazy for me to say, that perhaps the reason you’re reading this rant from me is because you’re meant to do something about it. Maybe?

You cannot imagine how much I struggle internally every time I see what’s coming on the horizon. The reason its a struggle is because many of our readers and students just don’t do anything about it despite several attempts from me to get them to see things for how they really are.

My struggle is in making sure I am reaching as many as I can. My vision is to pull out as many as I can from this quick sand of misinformation and financial struggle (that’s likely to befall many) and point them to a few solutions.

Repeating the problem does not provide a solution… I know. But such is the level of slumber amongst the masses, that even if you put the truth in front of them on a platter, many would deny it.

In fact, many will fight against it.

Such is the power of the Religion of Comfortable that having eyes, they don’t see, having ears, they don’t hear. Such… is the Religion of Comfortable.

Every Person Serious About Their Future Should Watch This Short Video From a Shaolin Monk

So here’s a 3 step approach to getting up and preparing for a pivot

Face the fear

Uncertainty always brings about a lot of fear. The government is banking on this fear to be able to pass more and more stupid laws that are designed to deprive the masses their right to choice. I’m not going to go into it because it will be a massive tangent and I want to stay on point.

Remind yourself that you have the power within you. You have a mind, that is capable of thinking, analysing and choosing. You have a will, that is directed by you. Not anyone else. All you have to do, is pull yourself out of that comfort zone, put your game face on and get ready to cross the bridge of pivot.

Identify your flow

Every person has their own skillsets, capabilities and talents. Identify yours. Identify your weaknesses, and your strengths.

Have a debate with yourself about what you feel are the greatest challenges ahead for you as an individual. Argue with yourself as to why something is a weakness and why something is a strength. Prove to yourself that a self-limiting belief such as “I’m not good with numbers” or “I’m not a good talker”, is simply not true, because you know how to do 2+2 and you can also express yourself (poorly or well, you still can).

Don’t let your self-limitations stop you from breaking out of your shell. Time to step up. If not now then WHEN???

Was that a series of rhymes? Completely unintended… but I hope you know what I mean.

Up-skill then Up-scale

Nothing compares to knowing how to navigate your way through this maze of uncertainty and nothing is worse than having to take the bench while opportunities…life changing opportunities pass you by…

You’ve got to know how to take advantage of all these. For that, you need to think outside the square. Yes, it takes money to make money, so think, where could you get the best bang for your buck.

Think how much do you have to start with? If it is in the hundreds then clearly you won’t be able to buy properties with it. In fact, I have a strong argument as to why buying properties right now is a terrible idea even if you have the money, unless you already hold more than 20 properties in your portfolio and are looking at buying with no expectation of growth for the next 10 years – just for the sake of being able to say to yourself that “I bought a property during covid”. Because, that’s all it will end up being in the current market.

An illiquid asset with limited growth potential and a liability in the short term.

You’re far better off considering ways to 2x or 3x or 5x your money in a 6-12 month timeframe through something like the Real Estate Investment Trust market, or just the share market in general.

I am also very cautious about suggesting people buying gold because if you’re buying Gold Certificates, then you should know that the exchange for paper market, which is where you would go to swap your paper with actual gold, is turning people away because there’s no gold in their vaults.

If you’re talking about buying bullion, make sure you buy from countries that have a swap line arrangement with the US. Your chances of government confiscating that gold at a future date are far lower than if you bought bullion from countries that don’t have a swap line arrangement with Uncle Sam.

US Dollar Swap Lines

Here’s a list of countries with swap line arrangement with the US (as of July, 2020)

  • Canada
  • UK
  • European Union
  • Singapore
  • Japan
  • Switzerland
  • Australia
  • Brazil
  • South Korea
  • Mexico
  • Sweden
  • New Zealand
  • Denmark
  • Norway
  • Indonesia

Lastly, if you have the financial bandwidth to get on with some investments, then think how and develop a plan, a roadmap. Explore whether the REIT market is better for you or the Property Option market. If you have stable income, then are you better off using that to borrow while you can, and go down the track of picking up a few bargains as they become available? Are you a good project manager and have a creative flair for cosmetic renovations…Is that an avenue worth pursuing? Or are you someone that wants to develop a second income stream by starting your own business?

Either way, there are multiple solutions to this problem of how to pivot. Not just here.. but you can find solutions elsewhere too.

The point here is this:

DO SOMETHING.

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