During the Tulip Bulb Mania, each bulb was considered as good as gold. At its peak one was worth as much as a home in Amsterdam.  It took roughly one year before the bubble burst and people lost everything.  

Then there was The South Sea Company which was considered too big to fail. In the early 1700’s, investing in the company was the path to prosperity.  Even the Bank of England was a major shareholder.  In March 1720 the share price hit 300£.  By July 10^th the share price was 1,000£.  Not even two months later the shares were worth 400£.  Soon thereafter the company disappeared.  One large group of shareholders that lost their fortunes to the South Sea Company was British politicians. 

During the 1870’s the road to riches was U.S. railway bonds.  During this time the population was growing and business was expanding.  Rail lines were being built across the landscape to accommodate the economic expansion.  Banks and investors were throwing their money at any railway bond they could.  However, there was overbuilding and most of the railroads went bust, taking down tons of investors and banks with them.

Today there are two financial mistakes being made. The first is like the Tech Bubble. In fact, it is so similar that we will call it Tech Bubble Two. Hedge Funds, mutual funds, and individuals are throwing their money at companies like Tesla, Uber, and Lyft.  Uber and Lyft have lost $8.9b since 2009 and $2.9b since 2012, respectively.  Tesla has just made its first miniscule profit (it is questionable if it will continue).  Yet, all three are cash short and have a high share price which bears no relationship to their financials.  It is based solely on the hope that one day they will be the next Microsoft.  We see each of these share prices declining by at least 80%, or simply disappear like South Sea.  The result will be billions of dollars being wiped out of existence. 

The other mistake that we will never learn from is borrowing as much as possible to enjoy the good life.  Canadians are at the top of the most indebted consumer while having the lowest savings rate in the world . People are also paying historical prices for homes, even though it is far more profitable to rent than it is to buy. Today’s housing prices are declining and will do so until the average person can afford a home.  We will not see a repeat of the last ten years in the housing market for at least a generation.

Today we are now near the end of the longest bull market in stock market history.  We predict the beginning of the downturn will begin after August.  The world has an abundance of just about everything farmed, manufactured, housing, energy liquids, and more.  Prices should be falling, but they are not, yet.               

The world learns very little from past mistakes and history provides many examples of how we love to repeat them. One thing history tell us is that when everyone is in the same boat, trouble comes, and it wipes out wealth.  This is coming sooner rather than later.  It is silly we have companies worth billions that have no profits.  People think this time it will be different or that they will sell at the peak.  Unfortunately, this never happens.

Do something rare today; pay off debts.  Throw away credit cards and cancel lines of credit or reduce the limit to below your monthly budget.  Do not touch any Reverse Mortgages.  Build up savings and invest in companies with profits that pay increasing dividends only. We do not know when a recession will take place, but we believe today’s golden era is just about over. Deflation is the biggest threat to our system today. Cash is King. Build up a reserve and follow our recommendations in our monthly publication.