NEWS | August 9, 2023
Measures reassure. This truth held true even during the 2008 banking crisis, the previous benchmark for gauging stress in the financial system. Back then, as today, top representatives from politics and regulatory authorities attempted to prevent a wildfire.
The takeover of Credit Suisse by UBS over the weekend was the largest forced banking merger since the financial crisis 15 years ago. It marks the end of a 167-year-old financial institution that served as both a central asset manager and one of the 30 systematically important banks. However, the banking crisis is not resolved with this. The true cause of the downward spiral is not a lack of liquidity, but rather a lack of trust. And the latter is profoundly shaken among investors.
To prevent a global wildfire, the Fed and other controlling central banks responded to the panic with a coordinated action. Essentially, this action involves the Fed injecting dollars into the financial system to ensure liquidity. However, despite this measure, the DAX (German stock index) experiences ups and downs, and the oil price collapses.
The next steps largely depend on the interest rate strategy of the US central bank. Financial analyst Egmond Haidt describes in the online business magazine Stock3 that the S&P 500, Nasdaq, and DAX could recover in the short term. But if the Fed were to even slightly raise the benchmark interest rate, another massive sell-off could occur. In that case, the banking crisis would gain momentum.
So, should investors be afraid? Our view: Panic is never a good reaction. “Re-action” already implies that something external becomes the cause of one’s actions, surrendering entirely to that cause. Nervousness is more appropriate. It allows one to maintain a cool head in such times. In this situation, where should one invest to be prepared for all scenarios?
A solution can be discerned from the rising price of gold. Gold is doing what it has promised for millennia: preserving value. It shares this trait with commodities, whose prospects can be inferred from the price of the precious metal. The commodities of the future are technology metals and rare earth elements. With no counterparty risk and pure intrinsic value, they stand for security. Those who invest in these commodities have the opportunity for attractive returns, including tax-free storage and tax-free gains after one year of holding.
PS: Unlike gold, technology metals and rare earth elements are not intended to be included in the asset register planned by the EU. Hence, they offer even higher protection.