Early August saw the stock market take a dive in many countries with major markets experiencing significant falls. Most notably was Japan which fell more than 12% in one day, but since then it has recovered more than half those losses. So what was the trigger?
The Japanese central bank announced they were raising interest rates in order to strengthen their weakening currency. This announcement was effective, with the Japanese currency strongly rising, however, the flow on impact was unexpected. As Japan’s interest rates have been hovering close to zero for many years, financial institutions have been borrowing in Japanese yen and then reinvesting the funds in other higher-yielding assets. This is a well known trade known as the Yen-carry-trade. However the fast rise in the currency meant that many of the borrowers faced margin calls as their positions went against them, forcing them to sell, leading to dramatic share market falls.
Fragility in the Stock Market, Financial System and Recession Fears in the U.S.
This highlights just how fragile our financial system has become with excessive leverage throughout the system that could lead to problems at any moment. Almost a month later and the Japanese stock market continued to face uncertainty dropping by 4% in a single day in the first week of September.
In the United States, their markets fell in response to recession fears, which led to the US Federal Reserve announcing that the next rate movement was likely to be down to protect the economy.
Biblical Wisdom for Uncertain Times
So, what should we do? The Bible offers great wisdom on how we should invest.
Invest in seven years, yes, in eight; you do not know what disaster may come upon the land.
Put simply, we should diversify our investments. Nobody knows the future. What we do know is the stock market rises and falls. At times dramatically. When it comes to investing it is important to play the long game and to turn off all the short-term noise that we hear in the media.
The key to long-term investing is relatively simple. Buy good quality assets at reasonable prices and hold onto them for the long-term. You will find more biblical wisdom and depth on this topic inside our e-book. Check that out here.
With investing, we should always remain humble. Analysing shares or real estate takes time, effort and it is easy to make mistakes. We must remain teachable and continue to grow our knowledge and be willing to seek the wise counsel of those who have long-term experience.