Financial meltdown is closer than you think – what to look out for as an investor

A financial meltdown always seems impossible until the very last second.

Crossing the psychological barrier of denial takes only a few hours after such event has occurred. The markets start to decline very rapidly and billions worth of value evaporate into thin air as if it never existed.

In all financial meltdowns, there are winners and losers.

Those who understand the underlying processes of the crisis take appropriate bets on the market, thus getting amazing returns.

While 95% of the investors, be it small or large, loose an unreasonable amount of their assets withing hours.

The biggest recent financial meltdown

The 2008 financial meltdown was such an event. In retrospect, we all know what happened. The big banks got greedy by continuously repackaging bad financial instruments called CDO-s.

These CDO-s contained the debtors of the real estate sector. In short: big banks gave out bad loans. They repackaged these bad loans and told everyone they are great for investment.

When the default rate became too high the whole system collapsed. Those who understood this at the time made huge gains, while most investors and even the big banks crumbled.

Now for 9 years, we experienced a steady, unparalleled economic growth. This leads many to believe that another financial meltdown is inevitable.

It could start tomorrow or several years from now. Like in the past, those who understand the underlying processes will profit, while most people will loose once again.

I would like to present in this article the most probable cause for the next financial meltdown.

Signs of a new financial meltdown

Like in all previous financial meltdowns, a subsystem of our society is overvalued. Just as the US real estate sector had to collapse to trigger the crisis, now too, a  thought to be trusted sector has to collapse.

In my opinion, that sector is the traditional telecommunications sector.

High-tech services like Facebook, Youtube, Twitter, Etc. seem to completely replace the functions of traditional telecommunications, like TV, Radio, newspaper, Etc., especially among the younger generations.

Despite that, the combined worth of the sector on the stock market continues to increase. In my opinion, this makes no sense.

Most big Indices and ETF-s of the US telecommunications sectors appreciated the past few years.

To name a few:

  • Vanguard Telecommunication Services ETF
  • IShares US Telecommunications ETF
  • SPDR S&P Telecom ETF

As the older generations are replaced by the younger ones, this issue will be more and more apparent.

Viewership and subscriptions will continue to decrease for these services and they will be forced to adopt new technologies or exit the telecommunications market.

It wouldn’t surprise me if these overvalued assets in the traditional telecommunications industry collapsed within a few years.

Whether this will be enough to trigger a collapse is impossible to predict. At the very least there will be losers and winners once again.

Conclusion:

Always buy shares of companies which represent the future of telecommunications like Facebook, Netflix, Microsoft, Twitter or even smaller startup companies with exciting new technologies. Avoid shares which are associated with the traditional telecommunications sector like 21st Century Fox, ComCast, Vodafone, Etc.

These new technologies seek to replace entire systems of our society. They will succeed. There are many other overvalued sectors int the economy as well, which we will cover in other articles.