The Recession Bubble

It’s now been over a decade since the famous ‘dot-com’ bubble and catastrophic burst that followed. During the bubble growth the World Wide Web – or www – became investors’ favourite phrase; many relative newcomers to the markets were becoming overnight success stories, earning fortunes at an unprecedented rate. Many of the new entities and few veterans started making some very bold and brash decisions in terms of investment: they were going for a ‘growth over profits’ strategy that would only work in a few exceptional cases (Google) and only over a substantial period of time, which most of these entities did not have, as they had used up most of their venture capital and would be folding within two years. What the thought process was at the time I cannot tell you but I think it wouldn’t be rocket science for a wise investor to see that these practices could not go on for any substantial period of time – which in the ‘dot-com’ instance was only roughly around 5-6 years (1995-2000/1).

Since that period, the economy had started to recover somewhat and the markets seemed to be operating within their normal capacity. As it turns out this was not the case, as once again what I call the ‘Gordon Gecko’ syndrome was plaguing the markets. With everyone working with their individual interests at heart, it soon spiralled out of control and in 2008 it was announced that we were in a global recession, which is still on-going!!

Since the advent of the global recession, investors’ confidence has been at an all-time low, ‘Gordon Gecko’ syndrome is no longer ‘cool’ (as can be seen with B. Madoff and other ‘Gecko alumni’). These days long term investing seems a ‘myth’ to many as they find it difficult to find secure investments. Most people are turning to commodities markets – especially precious metals (gold, silver) – as the only safe investments available; this has sent the cost of these investments skyrocketing with no clear end in sight. Gold prices are nearly at the $2000 a troy ounce mark, with some analysts saying that it could top $3000+, this is over a 400% increase in the last 5 years (around the start of the Recession).

As you can imagine the last ten years have been a literal ‘nightmare’ for many investors, especially private individuals, many of whom lost significant chunks of their fortunes when their brokerage firms/fund managers had to cease operations and file bankruptcy. If one were to start researching the markets from the year 2000 onward you would see that many investors, investment firms and banks have literally vanished from existence and most of the main players that we still hear about daily are technically only there because they were bailed out. In fact there are only a few key players in operation that did not benefit from a bailout or even need one for that matter, as they were not only able to survive but thrive during all these doom and gloom periods. Firms such as Lombard Odier have been able to successfully operate profitably through over 40 crises, as they base their strategies around diversification rather than trying to reinvent the wheel.

If we look at a definition for insanity it would say something like ‘repeating the same thing over and over whilst expecting a different result’. For example, would you repeatedly hit your head against a wall in the hope of curing a migraine? Exactly, you wouldn’t do that as it would probably make the situation worse!! Yet in the financial markets and banking sectors this seems to be the ‘normal’ way of doing business, as even after being bailed out they are carrying on a ‘business as usual’ routine that will no doubt cause the type of global economic meltdown that only a few will be able to survive. This is why as an investor you should only make informed decisions and do not rely on a fund manager to look after your assets unless they are from a reputable firm that fully understands the markets and puts their clients first!! This is especially important if either you do not have the time or you do not understand the markets enough to make a consistent profit on your investment. I personally believe that private independent firms are the best options if you find yourself in the latter situation. There are a few private independent firms that have a proven track record at managing and investing wealth, but alas even ‘track records’ can be misleading, and it’s best to check the firms balance sheet. For instance Lombard Odier has proven track records along with robust balance sheets, that makes it one of the most solid & secure financial institutions in Europe.

Jake