Financial Advisors Ignore Warnings of a Currency Crisis
I have three friends that are financial advisors.
Each one of them has been in the business for more than 20 years. One of them specializes in bonds, one of them does estate planning, and the other is an equities specialist.
Combined, the three advisors have nearly a thousand clients and manage roughly $200 million in assets. When I want to get a feel for what investors are thinking, I ask my advisor friends.
Given the ominous economic backdrop of today, I was especially curious as to what they were advising their clients to do. So I set up meetings with them over the last month in order to pick their brains.
What I heard really shocked me…
To sum it up, every one of my advisor friends was doing business as usual. There was hardly any thought or planning on behalf of their clients that factored in a potential currency crisis.
There was no discussion with clients about the possibility that treasury bonds could become nearly worthless. There was little discussion about gold, the centerpiece of any crisis plan. There was literally no concern whatsoever about the seriousness of the situation we are in.
I thought, surely this can’t be true. These are smart people – they’ve all been in business for more than two decades, advising other smart people and collectively managing over $200 million.
They had to know about the precarious position our country is in, right?
Financial Advisors Are Ignoring the Signs
Pete, the estate planner, was excited to tell me about a new low-cost variable life insurance product. “Based on the projections,” he said proudly, “it’s the only product to show any cash value the first year.”
When I asked him what would happen to that variable life insurance policy if the stock market tanked due to a currency crisis, he pointed out that the insurance company had been around 120 years.
He then showed me a spreadsheet of cash value projections for his pet product.
“Look how the cash value builds up over 20 years!” Pete marveled.
Next up was Bob, the bond expert. Knowing that bonds took a hit early in the year, I asked him how his clients were faring. Bob admitted that most of his clients lost 10% – 15% when rates shot up in June, but he explained that interest rates are likely to stay low for a long time and that it’s a great time to buy munis.
I asked what would happen to bonds if there were a currency crisis. He responded with, “How much worse can it get?”
“I think we could see a collapse of the dollar,” I said.
“I don’t think that will happen,” he said with optimism, but with nothing to base his opinion on.
Finally, I met with Edwin, the equity specialist who works at a major brokerage house in Miami. He seemed a bit more aware of the precarious situation our government has put us in, but had not really positioned clients in a way that would protect their wealth.
As Edwin explained it, “I think we’ll see a major collapse in bonds which will spill over to stocks as well. But no client wants to hear about that. It’s very difficult to convince people to do the right thing.”
“What about gold?” I asked.
He replied, “I have access to both gold ETF’s and physical gold bullion but most clients don’t want to hear about it, especially now that the price Is down -40% from its highs.”
New Developments Could Lead to a Crisis
Like a chess match that’s nearing the end, all the pieces are in place for the end game of a painful currency collapse. Countries and major corporations are currently preparing to do business outside of the dollar which move us closer to the tipping point.
In October, the European Central Bank (ECB) and the People's Bank of China (PBOC) agreed to a direct swap – bypassing the dollar – as trade increases between the two areas.
China is the European Union's second-largest trading partner behind the U.S. The EU exported 71.4 billion euros worth of goods to China in the first six months of this year and imported 133.6 billion euros, according to data from Eurostat, the European Union's statistical office.
The implications for the dollar are severe… Because the dollar is the world's reserve currency, foreign nations must change their money to dollars before transacting. This agreement between the ECB and China – which lasts for three years – pushes the dollar out of the equation and strengthens the yuan.
And there’s proof it’s working…
The Society for Worldwide Interbank Financial Telecommunication (SWIFT) is an organization that enables transfers between large financial institutions and corporations. (We use SWIFT codes when sending and receiving wires.)
According to SWIFT, last week the yuan surpassed the euro in trade. It's bested only by the U.S. dollar – for now.
Like my financial advisor friends, I have to assume that most Americans are oblivious to the possibility dare I say eventuality, of a currency collapse. I hate the thought of friends and family losing a good percentage of their wealth, but we all have to decide for ourselves.
Looks like I may have to pick up the tab for friends more often in the future.