A collection of observations from people much smarter than me.
I started my investing journey as a value investor. It took me a while, but I’ve finally realized that the system is rigged. The Central Bank and Government response to the economic impacts of COVID19 has made the blatant manipulation of the market even more apparent.
This is one of those periods where decades happen in a matter of months. I’ve distilled everything I’ve learned over the past few months into this four part series. Hope you enjoy!
- Part 1 - The Big Debt Cycle
- Part 2 - Central Banks are Failing Us
- Part 3 - The Market is Rigged
- Part 4 - Scarcity in a World of Unlimited Money Printing
The Big Debt Cycle
The US is in a debt crisis.
History shows that debt crises are inevitable. It’s too easy for policy makers to be loose with credit because near term rewards justify it. Politically, it’s much more difficult to keep credit tight.
Debt crises come at the end of a big debt cycle.
Source: The Changing World Order - Ray Dalio
That leads to these mini cycles, with each cycle ending with more debt, and less stimulant in the bottle than the cycle before it.
Source: How the Economic Machine Works - Ray Dalio
At the end of the cycle, debts are unsustainable, and the bottle is empty.
That’s where we are today.
Debt is at 136% of GDP.
Source: Compound Capital Advisors
Interest rates in the US are pegged at zero.
Source: Twitter - David Ingles
And are expected to stay at zero in the foreseeable future
Source: US Federal Reserve
June 2020: “We’re not even thinking about thinking about raising rates”
-Jerome Powell
July 2020: “We’re not even thinking about thinking about thinking about raising rates.”
-Jerome Powell
Central banks are losing the ability to create real economic growth.
From 2000 - 2018: “it has taken approximately $185 trillion of global debt to achieve $46 trillion of global growth.”
-The Price of Tomorrow - Jeff Booth
Here’s the Wilshire 5000 index. A representation of the overall market:
Here the same chart, but with the Fed’s balance sheet factored in:
Source: The Dawn of Chaos - Hugh Hendry
And debts have no sign of slowing down.
This will end well.
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