Founder’s Note: Our pal Joseph McBrennan returns to Manward after a long absence. As the head of a highly successful private investment bank, he has spent the past year or so connecting the dots to what he sees as major trouble ahead. So much so, he says, that it’ll put the market crash of 2008 and 2009 to shame. Below, he shares his thoughts on what’s happening and how to prepare. Pay close attention.
You may have noticed my pen here at Manward has been nearly silent for the past 18 months. This doesn’t mean I was idle.
Far from it.
For those of you who don’t know, I run a private investment bank. Its size – and its half-century of success – places an inescapable target on it.
The thing is, this target’s on you, your job and your business as well.
My company, my family and anyone who would listen to me has spent the past year preparing for a market meltdown that has the potential to make 2008 look like a minor setback.
It will affect everything. No market will escape it.
The Next Black Swan Event
The Lehman Brothers implosion in 2008 was a black swan event. It was an unforeseen event that caused devastating shocks to the financial markets.
That single domino knocked down the rest of the financial world.
A rare few read the tea leaves correctly. Even fewer listened to the warnings. By paying attention, I was able to sidestep the destruction.
We’re about to witness another such event.
The next black swan event will be the invasion of Great Britain by the European Union.
And a bloody mark on U.S. history is the road map to this unfolding disaster.
The EU began in the 1950s with six founding member states. The 1985 Schengen Agreement eliminated the borders of much of Western Europe. A single currency was adopted just over a decade later – on January 1, 1999.
Today there are 26 supposedly sovereign countries in the EU (with several waiting to join).
Our U.S. colonies managed similar feats in their first 85 years of existence.
Exactly like in our early history, big centralized governments and their advocates in Europe are elated with the “progress.”
And how could they not be?
Brussels, the capital, now makes all major decisions on defense, trade, climate, debt-to-GDP and immigration.
With immigration “solved,” these unelected bureaucrats have tackled other important issues facing their member states and citizens.
They’ve conquered critical items like the proper bend of cucumbers and the maximum number of bananas sold in a bunch. They’ve even regulated advertisers so they no longer can promote prunes as an effective, natural laxative. (We can all breathe easier.)
All was apparently rosy with the EU’s paternalistic fervor until 2016, when one member cried “Uncle!”
Despite the scare tactics of the liberal media and ruling elite during the referendum campaign, the citizens of Great Britain overwhelmingly voted to skedaddle… or “Brexit.”
Yet three years later, the country still can’t untangle itself from the EU’s bureaucratic clutches.
And the truth is the EU will never allow Great Britain to leave voluntarily.
Rhymes With Our Past
Any people anywhere, being inclined and having the power, have the right to rise up and shake off the existing government, and form a new one that suits them better. This is a most valuable, a most sacred right – a right which, we hope and believe, is to liberate all the world.
It’s unlikely anyone has read this quote anywhere in the media coverage of Brexit.
It’s an excerpt from a speech given before the U.S. Congress in 1847. The matter was the state of Texas’ right to secede from Mexico and join the United States.
The speaker was correct then and now.
However, then-congressman Abraham Lincoln apparently had no problem changing his tune a mere 13 years later when South Carolina decided to “shake off the existing government” and peacefully vote to leave Abe’s union of states.
Now, we may argue about the causes for our War for Southern Independence. But what can’t be debated is the economic devastation wrought by the Civil War.
A voluntary union, like a marriage, is always stronger when both parties believe they have a choice in the matter and then choose to stay.
Great Britain should be allowed to divorce the EU. This single action would signal to the world that peaceful, albeit messy, secession is a viable option.
In this scenario, my black swan theory would, thankfully, die.
But the problem is history has very few examples of centralized governments voluntarily giving up power over anything, be it another state or an individual.
Even the bankruptcy and relatively peaceful demise of the Soviet Union saw Russian troops march into many of their “breakaway republics.”
The very nature of government is to erode freedom. And it is this fact that points us to such dire consequences for Great Britain and the markets.
It’s also why I’ve spent so much time in Europe these last several months.
Brexit is the first shot at sovereignty. But I fear Brexit may become Europe’s Fort Sumter.
Even More Chaos
There has been a spate of recent elections in the EU. The parties wanting more sovereignty – so-called “far-right nationalists” – won handedly three of the four most important member states: France, Italy and Great Britain.
And yet, reading the headlines and listening to the talking heads, you’d think nothing has changed. You’d be forgiven for thinking that the Big-Government folks won all the elections.
Far from it.
Look also at the yellow vest riots in the streets of Paris or the Swedish no-go zones, where even heavily armed police fear to go. There is unease all over.
Doomsday: Who Cares?
By its very definition, a black swan event can’t be predicted.
Similarly, it’s near impossible to pinpoint the location of the next lightning strike in a storm. However, it’s starting to thunder.
I’d suggest you begin to wrap up your golf game.
First, our own backyard… The U.S. markets are showing troubling signs. The Treasury yield curve has once again inverted. (Ten-year bonds now yield less than three-month bonds.) This has been an accurate predictor of recession more times than not.
But the signs in Europe are even more troubling.
The German equivalent of our Treasury bond is the “Bund.” It’s trading at a negative level. This means, quite literally, that if you invest in one, you are guaranteed to lose money every year (negative 0.18% annually).
In September, less than $6 trillion in bonds was trading at less than zero. At the beginning of April, that number had grown by 50%.
The fact that investors are willing to lock in losses is a strong indicator of fear.
Again, it’s not time to give up your game. Stay invested, but tighten your stop losses. Build up liquid assets. Reduce risk… and reduce any overseas exposure.
Most importantly, pay attention to these signs.
Take simple steps that cost little and have little or no downside.
Markets crash, recessions start, citizens riots, and countries revolt and go to war.
The problem today is they all seem to be happening at once – as if they’re lining up for one spectacular explosion waiting on a single match.
Feeling helpless isn’t an option. What will make a real difference is how you prepare.
You can choose to be a victim, as many did in 2008. Or you can take simple, concrete actions and survive – and quite possibly thrive – in the coming market mayhem.