Way before we knew that Britain would be holding a referendum in June 2016 to decide whether or not the UK would be choosing to either leave or stay in the EU, our economic and political analysis have led us to issue a pretty gloomy forecast, which has been consistent throughout, and we have called it very accurately.
We have been saying that the world is heading towards a recession since 2015, as the symptoms the caused the last financial crash back in 2008 have never really gone away, and we could see a lot of sticky plasters that were used to prop up housing markets as short-term solutions as opposed to properly addressing the source of the issues to prevent it from happening in the future.
A key sign that the world is sliding into times of recession was indicated through activity within the gold markets. Gold has traditionally been the go-to asset as it’s price has historically rallied during times of wider economic downturn, it acts as a very efficient hedge against the slumps within the housing markets, stock markets and currency markets, as well as general manufacturing output and consumer activity.
Our forecast of the coming economic times were given more credibility by the following activity within the gold market. According to the World Gold Council, last year the banks acquired an incredible 651.5 tonnes to their portfolios, equating to a value of $27.7 billion.This does not represent just a minor increase. This is a staggering 74% higher number than what was added in 2017. In fact, 2018’s gold acquisition rate is the highest on record going back to 1971, when President Nixon brought an official end to the gold standard. In the 4th quarter of 2018, central banks purchased more gold than any other previous quarter on record, as much as 195 tonnes.
In contrast to the last global housing market crisis, we predicted that house prices would begin the fall in the UK before they did in the US, which is also transpiring. In mid August, house prices in the south of England outside of London have fallen for the first time since the last recession in 2009, and it is also the first time where prices have fallen in all three regions of southern England. In the last week of August 2019, the U.S. housing market was standing close to its highest ever value. The median sale price of a home sold in the second quarter of 2019 was $279,600, a 4.3% increase compared to the same period in 2018 and well above the market’s peak prior to the housing crisis. Again, growth like this isn’t sustainable and once the bubble peak has fully expanded, it will no doubt burst. In August 2018, global real estate was sitting at a record high, which we could see was not sustainable.
We were extremely surprised when David Cameron called for a referendum, it was not needed and we very much viewed it as a pretty naive chest-puffing exercise that could go horribly wrong, and low and behold – it did. His resignation was a formality and the pro-Brexit party had won the campaign. What was a surprise to everyone was that having won, instead of Brexit’s main advocates basking in celebration, they all seemed to scuttle off. Boris Johnson, Nigel Farage and Michael Gove all left the stage, and the UK seemed rudderless. Theresa May took leadership of the Conservative party and overnight, went from being a remainer to a Brexiteer.
We were strong in our opinion that it would be impossible for Theresa May to and the Conservative party to negotiate a deal that would satisfy the majority’s will to leave the EU. If the EU were to give the UK the all singing all dancing deal of independence that would allow the UK to swan off into the sunset, then the EU’s house of cards would collapse, for every other country with a high proportion of EU negativity amongst it’s populations would have all pointed towards Britain’s new great exit deal, and would be calling for the same. As was forecasted, May’s negotiations for a deal would hit brick wall after brick wall, a deal would not be reached and that she too would have no choice other than to resign as well, which is precisely what has happened.
The UK has since been under the leadership of Boris Johnson and the new deadline for Britain to leave the EU is on the 31st October. Boris’s cabinet and spokesman are all maintaining a tough stance in stating that the UK will be leaving the EU on the 31st with or without a deal, thus firmly putting the prospect of a no deal possibility on the table. Is this just a means of political posturing to encourage the EU to loosen up in it’s negotiations to become more compromising, or is the willingness to go for a no deal a genuine threat? We personally do not think that we will meet any form of definitive conclusion on the 31st October, and that another extension will be implemented. Either that or Boris Johnson and co will go for a no deal, which will be vigoursly opposed by Parliament. In the event of a deal not being agreed with the EU, will an unelected leader seriously have the audacity to suspend Parliament to get a no deal through is the question?
One thing we are all certain of is that a recession is on it’s way and has been on it’s way before the issue of Brexit was even conceived. Of course Brexit is going to be the excuse as being the factor that pushes the first domino, but I think we know that a mixture between the housing bubble that is due to burst, the exponential growth of world debt, the continuation of easy lending, trade wars, political uncertainty and volatility within the stock and currency markets – we have all of the prime ingredients that comprise the make up of an economic crash.
It is precisely why these times are built for investors to invest in real-world assets that are suited for the long-term, where short-term volatilities are ridden out and sustainable growth can be achieved.