Is Another GFC Coming? 

Unless you have had your head stuck in the sand, the media has recently inundated the airwaves with panic and gloom.

Even Rupert Murdoch got into the debate with his short but very powerful tweet due to his influence and following.

“Are asset values still too high? By historic standards they are, and with global growth low everywhere, plenty to worry about.”

The past few days has been one wild ride and I have received many emails from my readers and investors asking me of my view, so I thought I’d share my thoughts.

It has been a full six months since my last post on a similar topic “Are We Due for Another GFC Correction Soon?” and a month since my last post on the Greek Crisis “Will A Greek Exit Trigger Another European Crisis?”, so it seems timely to revisit this GFC topic all over again.

The only difference is that the last time, the markets were on a high back in February, this time we are in panic mode due to various reasons ranging from a slowing Chinese economy (which is what I have said for a long time and hence avoiding a heavily resources driven Australian market all together due to its close economic ties with China), to plummeting oil prices, and the likelihood of the Fed finally increasing rates this September.

As I have always said, I don’t like to predict, especially about economic matters. Why? Because I am likely to be wrong, unless of course I only show you the predictions I get right and sweep the rest under the carpet which is what many highly paid ‘gurus’ do, creating the perception they are always right.

Warren Buffett famously quotes ‘It is better to be approximately right than precisely wrong.’ What wisdom…

Although I don’t predict, I like to discover what is really happening everyday in the world markets based on hard facts and then form the most educated opinion I can based on these facts.

This way, whatever the media portrays, it won’t affect my decision making process simply because I have already established my thoughts beforehand. I hope the same for you.

So rather than tell you what I think, I’m going to now present three very powerful charts that pretty much sum up the whole market picture and will give you a good sense of whether we are in for another GFC or not.

1. TED Spread

This may be new to you but the TED spread is the difference between 3 month US Treasury futures against that of 3 month Eurodollar futures.

In layman terms, it basically measures the likelihood of default among corporate borrowers as the spread percentage gets larger. Simply by seeing how bad it got during the recent GFC (measuring above 4.6% compared to the current 0.32%), tells us the market as a whole does not believe we will have similar corporate borrowing defaults as compared to the GFC.

Ted Spread


2. 50 Day Moving Average % Stocks S&P500  

The following shows how oversold our market is, with only 4.6% of stocks of the entire S&P500 index above their 50 Day moving average. If history is anything to go by, when the markets gets as oversold as this, there is a high probability there will be a snap back recovery over the coming week and months. Just like we had in the past.



3. FRED Financial Stress Index

This is a very important overall market risk index measurement which amalgamates 18 weekly data series of seven interest rate data measurements, six yield spreads and five other indicators. The current measurement of -0.968 is extremely low by historical standards. You only need to see how high it went during the GFC as highlighted in grey.

Fred Index

It is data like these which allow me to measure the true back-end state of the market and confidently take advantage of new opportunities when others are in panic mode.

Remember; Be fearful when others are greedy and greedy when others are fearful.

In my opinion, I believe we are in the latter camp and it is up to us to let go of media hype and see for ourselves where the market is really at.

So in conclusion, the chance of another GFC around the corner is remote at best.


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