Esuli Pensieri
"Virtute duce, Comite fortuna"
01/22 :Long term view:
The confluence of high levels of accumulated debt in the System during the last 40 Years (now too big to repay in hard money) and the close to 0 Interest rates levels led Central Banks over the last 10 years to print money (QE) to service that debt (to make it possible for debtors to repay their debts). Then the Pandemic made the problem worse; In their response Governments created huge deficits and Debts with the Central Banks monetizing that debt. So, the exceptional Monetary (more liquidity) and fiscal policies implemented have created Inflation. Supply chain disruptions due to Covid and now the energy crisis are making the problem worse.The green idelogy has imposed the narrative that climate change will have catastrofic consequences on Humanity NOW. While we wait for the full real consequences Europe is now totally dependent from imports of energy from other countries. Ideology as a cost after all.
The fact that Interest rates will be purposely kept lower than rising inflation (this means real negative Interest rates) and of GDP growth in the years to come in order to deal with the new debt created means that Devaluation of the Debt is the strategy chosen by Authorities over Defaults (as many times happened in modern Times). This means purposely devaluing the value of Money/currency to reduce the real value of Debt. Investor should take note and act accordingly.
In fact,htis will have the consequence to transfer risk from debtors to the creditors (who will hold the debt that will be devaluated). This big shift from a deflationary environment to an inflationary environment (devaluing the value of Money purposely) could also cause Power(political) and wealth (those who control the means of production) shift from the leading world empire of today (US) to the new rising one (China) which has a much lower level of debt. This is worrisome because in addition to the mentioned debt problem we also have, internally, a big wealth gaps in the population which is causing social and political disorder and, externally, the rise of a new strong competitor with an educated workforce, high productivity, cost competitiveness and that invest a lot in innovation/technology.
Testing times are coming for sure and based on historic precedents the Countries that will face these times better will be those who have deficits and debt denominated in their own currency and have the ability to print money to service their debt. Survival will depend on large savings, low debt and a strong reserve currency (Also a united and civil population with la strong leadership and inventiveness)
12/2021 : Inflation expectation
Medium-long term view: A new commodity cycle has begun(red line). A Demand driven inflation or a Cost driven inflation wave in the coming years ? On the supply side the pandemic has created the disruption of established supply chains worldwide and bad realtionship with the "production" hub of the World of the last 20 years(China).A de-globalization period could begin, creating a shortage of many commodities.On the Demand side Central Banks are monetizing Governmen debts. Becasue CB are keeping interest rates low we now have negative "real" interest rates.This is probably a deliberate Government Policy to use inflation to devalue the Stock of Public debt that has reached unsustaianable levels.This is historically the less painful way to default on its debt.
02/2022 : SP500 Vs T-bond prices
Medium term view: Investors move to stock or bonds based on their perception of risk. Right now it seems stocks are close to their cyclical high and the alternatives are a more convenient.2022 should see a pause of the bull market in stocks.
01/2022 : Private Vs Public Wave
Long term view: The "private" wave that began at the end of the 70' when Interest rates where high could be close to reach its peak after 40 years. the graph shows that Stocks and Bond yields move in opposite direction. Capital has been concentrated in stocks because of its higher returns compared to Bond Yield ( declining in the cycle). We have the opposite situation of the 70': Yield near 0 and Stocks at all time high. A "public" wave is about to start ?
