First, Second, And Now THIRD WAVE CRASH
When I was in high school, I spent most of my time surﬁng or gazing out the classroom window, watching for ocean swells.
Every surfer knows that giant waves come in sets. Generally, sets of three. That means if you miss the ﬁrst two waves, turn and head out to sea. The giant third wave is coming.
I vividly remember the biggest wave I ever rode. It was winter, the time of year when the giant waves most often hit the shores of Hawaii. I should not have been in the water. I should have been standing on the beach with the crowd, gathering to watch the show. The waves were bigger than my surﬁng ability, yet ego got me into the water and kept me in the water.
On this day, I heard a surfer much further out from me shout, “Outside!” That meant I was too far inside, right in the break zone. Immediately, I turned my board and paddled frantically, hoping to get “outside.”
The ﬁrst of the waves was like a mountain. I barely got over the top, only to see the second mountain heading toward the shore. As I cleared the top of the ﬁrst wave, I saw the “outside” surfers still paddling. I knew the giant third wave was coming. I knew I had to catch the second wave or get wiped out by the third wave.
I was a little late on my takeoff on the second wave. I estimate it was a 12- to 15-foot swell. It probably crested to 18 feet as I stood and “took the drop.”
My legs wanted to quit as I raced ahead of the wave crashing behind me, but somehow I kept my balance, rode as far as I could, got to the beach, picked up my board and ran as fast as I could up the beach, to get out of the way of the third wave that was just beginning to crash.
The sight of fellow surfers, going up the face of the giant third wave, not making it, watching the swell crest, then break, and seeing their boards ﬂying through the air is burned in my memory.
When people ask me how I learned to time markets, I simply say, “I grew up surﬁng.”
The First Wave: 1998
The chart below shows the biggest ﬁnancial waves in the last 50 years:
In 1998, the foundations of the global paper-casino began to crumble and giant crashes began.
Following the first wave in 1998 was what is known as the dot-com bubble which burst around 2000. During the dot-com bubble, many people invested in IPOs of Internet companies that had no sales or profits.
In March of 2000, the party came to an end, but of course, many people did not want to believe it. Yet slowly but surely, the reality of the real world sank in. In a story from February 25, 2002, Business Week said:
“Some 100 million investors, about half of all adult Americans, can relate to that. They’re the new Investor Class that has emerged over the past decade. Predominantly middle-class, suburban baby boomers, they bought into the idea that stocks could make them richer. They exulted during the long bull market of the 1990s. But they’ve lost $5 trillion, or 30% of their stock wealth since the spring of 2000 when the dotcom implosion launched the second-worst bear market since World War II. It wasn’t Monopoly® money. It was money earmarked for retirement, for college tuition, for medical bills.”
The Second Wave: 2008
After the 2008 crash, the global central banks and the U.S. government printed an estimated $9 trillion, to save themselves and their friends.
By 2010, most people knew there was a global financial crisis. Unfortunately, most people did not know what to do about it. Rather than let go, most people clenched their fists tighter and waited for the crisis to pass, praying that their political leaders could solve this global crisis and that those happy days would return.
In my book Unfair Advantage, written in 2011, I said, “The problem is that in the coming decade, will prove to be the most volatile world-changing decade in world history.” I also predicted that the gap between the haves and have-nots would increase. Many in the middle class would slip into poverty.
Unfortunately, I was right.
When the governments chose to bail out the owners of the banks, governments chose to spare the rich at the expense of the poor and middle class.
In the coming decade, the rich will only get richer and the poor and middle class will grow poorer due to taxes and inflation.
This brings us to Third and Final Wave… Hitting now.
The Third Wave: 2020
With the coronavirus leaving millions out of work, it also means millions won’t be able to pay for housing. More than 2 million people faced foreclosure at the height of the 2008 mortgage crisis, home lenders are expecting up to 15 million mortgage defaults if the U.S. economy remains closed through the summer.
Tendayi Kapfidze, chief economist at LendingTree says, “I expect policymakers to do whatever they can to hold the line on a financial crisis, and that means preventing foreclosures by any means necessary.” This would mean more bailouts for the banks only this time, seven times bigger.
Historically, the third peak signals the long-term exhaustion point. Often a plunge follows after the third peak. That is why I’m predicting that the next crash will be bigger than we’ve ever seen before.
Of course, hindsight is always 20/20 in these matters. But I am here to provide a warning that history does have a history of repeating itself, so doesn’t it make sense to be on guard?
There’s no time like the present to start preparing for bad times, and having a solid financial education is your best offense. It all begins with understanding that money doesn’t make you rich. Your financial IQ is what makes you rich.
Editor, Rich Dad Poor Dad Daily