Lyn Alden put out a fantastic article today to her paid subscribers. Just going to post the very last section as it's relevant to your line of thinking.bhanacik said:This is my thought as well. The government will always come up with some way to carry on; just like they did in 2008.Chef Elko said:Why not just let it thrive in various exchanges and more in the shadows so the wealthy can exploit more market inefficiencies? There's two sides to everything brought up here.Heineken-Ashi said:Because the wealthy class wanted access to the constant 401k money to profit off the speculation in BTC.Chef Elko said:
I just feel like if this was all true why would the government allow Bitcoin etfs and allow cryptocurrencies to be more accessible to older folks/those who have amassed a large amount of assets?
Is BTC a government psyop created to eventually pivot the USD to BTC? Doubt it, but you never know.
Will the wealth class let anything that is highly speculated and traded exist without getting their piece of the pie? Never.
I'm not confident the federal government will ever cut back spending like they should. The can will be kicked forever. If the dollar truly fails, how bad will we be off? Certainly the entire world will be in chaos.
Quote:
The Changing Game Rules
The properties of the fiat currency system have incentivized debt accumulation and the playing of this global game of financial Blackjack.
Four decades of falling interest rates have been a huge tailwind for this strategy, since debts could continually be refinanced at ever-lower rates, and increasingly at rates that are very low relative to the rate of money supply growth. Additionally, large numbers of open capital markets in an increasingly connected world have made it possible to arbitrage between jurisdictions as well.
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Now, after interest rates bounced off zero in developed markets and may start going structurally sideways instead of structurally down, the effectiveness of that strategy is likely to diminish.
And as governments around the world increasingly have high debt at their sovereign level, they become increasingly incapable of sustaining high positive real yields for long periods of time, which makes it harder for them to convincingly fight inflation. Countries that face acute fiscal issues often turn to capital controls, which impairs the game of global financial Blackjack. It happened all the time in developed countries from the 1930s into the 1970s, and still happens all the time more recently in various emerging markets.Geopolitical conflicts are likely to further add barriers between the free movement of capital. Whether it's kinetic wars or trade wars or financial wars, as large groups of countries increasingly have tensions between each other in terms of strategic interests and run into their own fiscal dominance issues, the frictions on global capital movement have a high likelihood of increasing.Quote:
High public debt often produces the drama of default and restructuring. But debt is also reduced through financial repression, a tax on bondholders and savers via negative or belowmarket real interest rates. After WWII, capital controls and regulatory restrictions created a captive audience for government debt, limiting tax-base erosion. Financial repression is most successful in liquidating debt when accompanied by inflation. For the advanced economies, real interest rates were negative of the time during 19451980. Average annual interest expense savings for a 12country sample range from about 1 to 5 percent of GDP for the full 19451980 period. We suggest that, once again, financial repression may be part of the toolkit deployed to cope with the most recent surge in public debt in advanced economies.
-The Liquidation of Government Debt, IMF Working Paper 2015/007
So, the effectiveness of this global financial Blackjack strategy is likely going to diminish, although entities that already locked their debt in for long durations are potentially in a position to ride the momentum for quite a while longer.
The types of investments that worked well during the past four decades are less likely to work quite as well over the next four decades. The virtuous cycle of ever-lower interest rates, ever-higher private debt levels, and ever-higher equity valuations, is likely getting past its prime, and is at risk of rolling over into a vicious cycle in the other direction.
And in that shifting environment, it's important to remember that most investments are bad. The majority of unlevered businesses are not strong enough to produce returns for passive investors that outperform T-bills or gold. The majority of unlevered real estate properties, after maintenance and operation and taxes are considered, also fail to outperform basic assets like gold.
So in that environment, from the perspective of a passive outside investor looking to deploy capital, it's important to either seek out the businesses that have durable competitive advantages (network effects, powerful brands, intangible property, economies of scale, oligopoly participation, and so forth), or to be very sensitive to valuations when buying mediocre companies.
The prior four decades are unlikely to be a good dataset for back-testing and forming strategies that will work for next four decades, because the conditions will likely be quite different.
And the most important part..
Quote:
For equity and real estate investors, the key takeaways from this piece are 1) do not extrapolate the prior decades for a given investment and instead assess it with this context in mind, 2) try to emphasize the sectors that Bessembinder identified as ones that disproportionally generate excess returns, and 3) look for companies that have locked in or are otherwise still able to play this arbitrage game going forward in a more difficult environment for it.
Additionally, hard monies become a serious alternative once again in this context, and are worth serious consideration for a portfolio slice, because the hurdle rate for stocks to outperform them is high when there are not a lot of tailwinds at the backs of stocks.
"H-A: In return for the flattery, can you reduce the size of your signature? It's the only part of your posts that don't add value. In its' place, just put "I'm an investing savant, and make no apologies for it", as oldarmy1 would do."
- I Bleed Maroon (distracted easily by signatures)
- I Bleed Maroon (distracted easily by signatures)
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