IMO, massive inflation, and maybe capital controls are coming. When the US financial system collapsed during FDR's rule, the government tried to seize all of the privately owned gold. More recently, other countries have imposed capital controls, declared bank "holidays", seized savings / 401k accounts, and otherwise tried to slow the exit of people and funds.
Please consider buying private cryptocurrencies like Monero, so that you have a hedge against inflation / capital control risk.
"Last year the Fed increased the supply of US dollars in the financial system (M2) by 26%-- the single largest annual increase since 1943.
The Fed has nearly doubled the size of its balance sheet in the last 12 mos, 10x’d its balance sheet since the financial crisis of 2008.
US fought two world wars, battled the Spanish Flu pandemic, dealt with the Great Depression, waged Cold War against the Soviet Union, fought the Civil War against itself, put a man on the moon, etc. before reaching $1 trillion in debt."
"The US stock market: prior to the pandemic, the Dow Jones Industrial Average reached a record high of just over 29,000 points. Today, the market is more than 10% higher.
And yet--
1. Corporate earnings are DOWN. The average Earnings per Share in the S&P 500 is 30.47% LOWER than prior to the pandemic.
2. Corporate revenue is also down. Yet corporate DEBT is substantially higher.
3. The US economy as measured by GDP is weaker. Consumer spending is still lower than before the pandemic. Unemployment is higher.
4. Government debt is hilariously out of control, and the [gov] just announced that they want to raise taxes.
Lower profit, lower revenue, higher debt, higher taxes-- NONE of these trends should be favorable for stocks. Yet the market is UP, with the average Price/Earnings ratio in the S&P 500 now an incredible 40x." (historical average <15)
"The Fed knows that the strength of the stock market… along with the real estate and bond markets… is based on cheap interest rates. They also know that if they raise rates, these markets could suffer a dramatic downturn. So the Fed has two options to choose from, and neither is good: raise rates and cause markets to crash. Or, don’t raise rates, and risk inflation. They’ve pretty much already told us they’re choosing inflation."
Ray Dalio - head of Bridgewater, one of the largest hedge funds says "Why in the World Would You Own Bonds When… Bond markets offer ridiculously low yields" and goes into great detail.
https://www.bridgewater.com/
Concluding:
"Based both on how things have worked historically and what is happening now, I am confident that tax changes will also play an important role in driving capital flows to different investment assets and different locations, and those movements will influence market movements. If history and logic are to be a guide, policy makers who are short of money will raise taxes and won’t like these capital movements out of debt assets and into other storehold of wealth assets and other tax domains so they could very well impose prohibitions against capital movements to other assets (e.g., gold, Bitcoin, etc.) and other locations. These tax changes could be more shocking than expected."
"For these reasons I believe a well-diversified portfolio of non-debt and non-dollar assets along with a short cash position is preferable to a traditional stock/bond mix that is heavily skewed to US dollars. I also believe that assets in the mature developed reserve currency countries will underperform the Asian (including Chinese) emerging countries’ markets. I also believe that one should be mindful of tax changes and the possibility of capital controls."
In this environment, you want to be actively managed, globally diversified in emerging markets, in stocks with low price to earnings ratio, gold/silver, having US dollar denominated debt owed to someone else (not to owed to you). Crypto would be a good place to be (though its already very high like many kinds of assets)
I'm a little less bullish than ray on China as there is a global partition going on digitally and economically and China's fiscal position has significant structural issues as well (though different ones).
Another person's review of Ray's points
"Ray Dalio is the founder of one of the largest investment firms in the world and has amassed a personal fortune nearing $20 billion from his business and investment acumen.
In short, he understands money and finance in a way that most people never will. And it’s for this reason that his latest insights are so noteworthy.
In a recent, self-published article entitled “Why in the World Would You Own Bonds When. . .”, Dalio makes some blunt assertions about the alarming US national debt, the decline of the dollar.
Here’s a summary of the major points:
1) Interest rates are now so low that “investing in bonds (and most financial assets) has become stupid.”
Dalio points out that bond yields are so low today that investors would essentially have to wait more than 500 years to break even on their bond investments after adjusting for inflation.
That’s why sensible people are already ditching the bond market.
JP Morgan’s CEO Jamie Dimon recently said he wouldn’t touch a US government 10-year Treasury Note “with a ten foot pole.” Neither would Dalio, as he told Bloomberg this month.
2) This is a big problem for Uncle Sam. Investors are ditching US government bonds at a time when the US is “overspending and overborrowing”.
They just passed a $1.9 trillion stimulus, and they have another $3 trillion spending package ready to go, plus plenty of momentum for Universal Basic Income, health care, Green New Deal, and just about everything else.
In short, the government is going to have to sell a LOT of bonds (i.e. increase the debt) at a time when investing in bonds has become stupid.
3) This creates a huge problem for the US dollar.
“The frightening thing about this,” Dalio says, is that many investors have already come to the conclusion that bonds are terrible investments.
So these investors could decide to dump the bonds they already own “at the same time as the [US] government has to sell a lot bonds.”
Just imagine-- the US government could easily have to sell another $4 trillion worth of bonds over the next 12-months to cover its massive budget deficit, plus all these wild spending programs.
But then on top of that, investors who currently own US government bonds may decide to dump another $3 trillion worth of the bonds in their portfolios.
This would mean that $7 trillion worth of bonds flood the market at a time when few people want to buy them.
4) As Dalio explains, this would cause one of two things to happen:
“Either interest rates will rise,” in order to entice investors to buy bonds, or the Federal Reserve “will have to print substantial amounts of money to buy [the bonds] that the free-market buyer won’t buy.”
And it’s pretty clear they’re going with option B.
Last year, the Fed was by far the single largest buyer of all the newly issued US government bonds. Yet as Dalio writes, “when they print money and buy those bonds. . . that lowers real rates and it accelerates a depreciation in the value of the dollar, and it also raises inflation pressures.”
5) So what are the potential consequences?
“The real risk, the big risk,” Dalio told Bloomberg, “is of a monetary inflation . . . and that monetary inflation means that even when the economy weakens, inflation rates rise.”
This is essentially stagflation, i.e. rising inflation coupled with a sluggish economy.
6) When does Dalio see these consequences starting to arise? “Late this year.”
7) There are plenty of bigger picture issues too. Dalio acknowledges that the US government is going to need a LOT of money to finance all this spending, so taxes will likely rise. A lot.
As Dalio writes, tax increases “could be more shocking than expected.”
He also believes that “the chances of a sizable wealth tax bill passing over the next few years are significant.”
8) Dalio writes that, as a result of such tax policy and other destructive rules, “the United States could be perceived as a place that is inhospitable to capitalism and capitalists.”
And the combination of high taxes, high inflation, and hostility towards capitalism may compel many investors and businesses to shift their capital and operations overseas and “run from less hospitable places to more hospitable places.”
9) But don’t expect the US government to sit idly by while capital leaves the country. Dalio believes there is “the possibility of capital controls” to prevent money from exiting the United States, as well as “prohibitions against capital movements to other assets” outside of the US dollar like “gold, Bitcoin, etc.”
So, in short: too much debt and money printing leads to a declining value of the US dollar, and potentially stagflation.
As a result, the government is likely to drastically raise taxes and chase business and capital away from the United States, leading to capital controls and prohibitions on alternative investments.
This is not some wild conspiracy theory or crazy conjecture. This is one of the wealthiest, most successful fund managers in human history bluntly calling the end of the US-dollar debt supercycle."
Please consider buying private cryptocurrencies like Monero, so that you have a hedge against inflation / capital control risk.
"Last year the Fed increased the supply of US dollars in the financial system (M2) by 26%-- the single largest annual increase since 1943.
The Fed has nearly doubled the size of its balance sheet in the last 12 mos, 10x’d its balance sheet since the financial crisis of 2008.
US fought two world wars, battled the Spanish Flu pandemic, dealt with the Great Depression, waged Cold War against the Soviet Union, fought the Civil War against itself, put a man on the moon, etc. before reaching $1 trillion in debt."
"The US stock market: prior to the pandemic, the Dow Jones Industrial Average reached a record high of just over 29,000 points. Today, the market is more than 10% higher.
And yet--
1. Corporate earnings are DOWN. The average Earnings per Share in the S&P 500 is 30.47% LOWER than prior to the pandemic.
2. Corporate revenue is also down. Yet corporate DEBT is substantially higher.
3. The US economy as measured by GDP is weaker. Consumer spending is still lower than before the pandemic. Unemployment is higher.
4. Government debt is hilariously out of control, and the [gov] just announced that they want to raise taxes.
Lower profit, lower revenue, higher debt, higher taxes-- NONE of these trends should be favorable for stocks. Yet the market is UP, with the average Price/Earnings ratio in the S&P 500 now an incredible 40x." (historical average <15)
"The Fed knows that the strength of the stock market… along with the real estate and bond markets… is based on cheap interest rates. They also know that if they raise rates, these markets could suffer a dramatic downturn. So the Fed has two options to choose from, and neither is good: raise rates and cause markets to crash. Or, don’t raise rates, and risk inflation. They’ve pretty much already told us they’re choosing inflation."
Ray Dalio - head of Bridgewater, one of the largest hedge funds says "Why in the World Would You Own Bonds When… Bond markets offer ridiculously low yields" and goes into great detail.
https://www.bridgewater.com/
Concluding:
"Based both on how things have worked historically and what is happening now, I am confident that tax changes will also play an important role in driving capital flows to different investment assets and different locations, and those movements will influence market movements. If history and logic are to be a guide, policy makers who are short of money will raise taxes and won’t like these capital movements out of debt assets and into other storehold of wealth assets and other tax domains so they could very well impose prohibitions against capital movements to other assets (e.g., gold, Bitcoin, etc.) and other locations. These tax changes could be more shocking than expected."
"For these reasons I believe a well-diversified portfolio of non-debt and non-dollar assets along with a short cash position is preferable to a traditional stock/bond mix that is heavily skewed to US dollars. I also believe that assets in the mature developed reserve currency countries will underperform the Asian (including Chinese) emerging countries’ markets. I also believe that one should be mindful of tax changes and the possibility of capital controls."
In this environment, you want to be actively managed, globally diversified in emerging markets, in stocks with low price to earnings ratio, gold/silver, having US dollar denominated debt owed to someone else (not to owed to you). Crypto would be a good place to be (though its already very high like many kinds of assets)
I'm a little less bullish than ray on China as there is a global partition going on digitally and economically and China's fiscal position has significant structural issues as well (though different ones).
Another person's review of Ray's points
"Ray Dalio is the founder of one of the largest investment firms in the world and has amassed a personal fortune nearing $20 billion from his business and investment acumen.
In short, he understands money and finance in a way that most people never will. And it’s for this reason that his latest insights are so noteworthy.
In a recent, self-published article entitled “Why in the World Would You Own Bonds When. . .”, Dalio makes some blunt assertions about the alarming US national debt, the decline of the dollar.
Here’s a summary of the major points:
1) Interest rates are now so low that “investing in bonds (and most financial assets) has become stupid.”
Dalio points out that bond yields are so low today that investors would essentially have to wait more than 500 years to break even on their bond investments after adjusting for inflation.
That’s why sensible people are already ditching the bond market.
JP Morgan’s CEO Jamie Dimon recently said he wouldn’t touch a US government 10-year Treasury Note “with a ten foot pole.” Neither would Dalio, as he told Bloomberg this month.
2) This is a big problem for Uncle Sam. Investors are ditching US government bonds at a time when the US is “overspending and overborrowing”.
They just passed a $1.9 trillion stimulus, and they have another $3 trillion spending package ready to go, plus plenty of momentum for Universal Basic Income, health care, Green New Deal, and just about everything else.
In short, the government is going to have to sell a LOT of bonds (i.e. increase the debt) at a time when investing in bonds has become stupid.
3) This creates a huge problem for the US dollar.
“The frightening thing about this,” Dalio says, is that many investors have already come to the conclusion that bonds are terrible investments.
So these investors could decide to dump the bonds they already own “at the same time as the [US] government has to sell a lot bonds.”
Just imagine-- the US government could easily have to sell another $4 trillion worth of bonds over the next 12-months to cover its massive budget deficit, plus all these wild spending programs.
But then on top of that, investors who currently own US government bonds may decide to dump another $3 trillion worth of the bonds in their portfolios.
This would mean that $7 trillion worth of bonds flood the market at a time when few people want to buy them.
4) As Dalio explains, this would cause one of two things to happen:
“Either interest rates will rise,” in order to entice investors to buy bonds, or the Federal Reserve “will have to print substantial amounts of money to buy [the bonds] that the free-market buyer won’t buy.”
And it’s pretty clear they’re going with option B.
Last year, the Fed was by far the single largest buyer of all the newly issued US government bonds. Yet as Dalio writes, “when they print money and buy those bonds. . . that lowers real rates and it accelerates a depreciation in the value of the dollar, and it also raises inflation pressures.”
5) So what are the potential consequences?
“The real risk, the big risk,” Dalio told Bloomberg, “is of a monetary inflation . . . and that monetary inflation means that even when the economy weakens, inflation rates rise.”
This is essentially stagflation, i.e. rising inflation coupled with a sluggish economy.
6) When does Dalio see these consequences starting to arise? “Late this year.”
7) There are plenty of bigger picture issues too. Dalio acknowledges that the US government is going to need a LOT of money to finance all this spending, so taxes will likely rise. A lot.
As Dalio writes, tax increases “could be more shocking than expected.”
He also believes that “the chances of a sizable wealth tax bill passing over the next few years are significant.”
8) Dalio writes that, as a result of such tax policy and other destructive rules, “the United States could be perceived as a place that is inhospitable to capitalism and capitalists.”
And the combination of high taxes, high inflation, and hostility towards capitalism may compel many investors and businesses to shift their capital and operations overseas and “run from less hospitable places to more hospitable places.”
9) But don’t expect the US government to sit idly by while capital leaves the country. Dalio believes there is “the possibility of capital controls” to prevent money from exiting the United States, as well as “prohibitions against capital movements to other assets” outside of the US dollar like “gold, Bitcoin, etc.”
So, in short: too much debt and money printing leads to a declining value of the US dollar, and potentially stagflation.
As a result, the government is likely to drastically raise taxes and chase business and capital away from the United States, leading to capital controls and prohibitions on alternative investments.
This is not some wild conspiracy theory or crazy conjecture. This is one of the wealthiest, most successful fund managers in human history bluntly calling the end of the US-dollar debt supercycle."