The parallel most analysts draw with this summer is the summer of 2008. Nobody then could fully appreciate the carnage to come in financial markets but there were plenty of warning signs.
It was trouble in the banking sector that gave us the biggest warning then, namely subprime lending and the first bank run in the UK for more than a century at Northern Rock.
This time we have the eurozone sovereign debt crisis, and headlines like JP Morgan’s $9 billion loss on its ‘London Whale’ trading book and a half-billion dollar fine for Barclays Bank over interest rate fixing.
The economic backdrop is also equally fragile if not considerably worse because global central banks have orchestrated so much in terms of massively expensive bailouts in the interim.
Their efforts are ever bigger and each shot of heroin for the global economy delivers a shorter and shorter period of calm.
European summits come and go, promising final solutions that never quite seem to work. Germany will not pay for euro bonds but then this is an unworkable solution and would only rack up more debt.
A great reset of the global economy is called for with debts forgiven, banks bankrupted and closed, the banking sector reformed wholesale and currencies pegged to a new IMF monetary unit backed by gold and silver.
How long will it take for this to play out? We are reaching the end of the road. Yields on Spanish and Italian bonds remain dangerously high and these countries are too big to bailout.
Growth pacts of $180 billion from European leaders today convince nobody. There is no substance there and the figures are conjured out of thin air. What conditions will be attached to the Spanish bank bailout?
It will be the global financial markets that sort this mess out, but only by creating what first looks a much larger mess.
This is not going to be a comfortable period for investors unless they take the proper precautionary measures now and time is running out.
The next issue of the ArabianMoney newsletter will present our best ideas on how to protect your portfolio against the coming storm (subscribe here). It’s arrival is inevitable and there is not much time left to batten down the hatches.