Time To Stay Out of Dodge
The end of hyper-financialization and hyper-globalization, which drove speculation and boosted profits for decades, as well as the end of central banks providing financiers with free money through ZIRP (zero interest rate policy), also known as the historically low cost of capital, are the two main dynamics at play.
The Federal Reserve will have to "pivot" from raising rates and cutting financial liquidity, free money for financiers, to lowering rates and "printing" money once more. This is the crux of the bullish argument for equities and bonds (increasing liquidity).
My View - What Is Really Happening
Regarding these fundamental causes of systematically increasing costs, the Fed has very little power. Their sole means of control is to raise the cost of capital and credit, which complements the other structural causes by adding an inflationary source. No cycle or trend lasts forever, and the 40-year uptrend has ended. Now a different cycle and trend is developing.
More credit being pumped into a debt-ridden economy won't help anything at all. Instead, because interest accrues on all debt, it has a negative impact by decreasing disposable income through increased interest payments.
Costs were continuously falling as a result of technology, financialization (lower interest rates and an ever-increasing credit and money supply), globalization, and growing workforces, production, and consumption during the 40-year bull market.
These patterns have changed. Costs are rising, technology is no longer driving growth, globalization is waning, workforces are contracting, and scarcities, depletion, and higher prices are limiting demand.
The Good In All of This
The end of Speculative Fever is a factor that I believe is terribly undervalued. A large portion of the stock market gains over the last two decades have come from speculation rather than genuine increases in productivity, which are based on finding a "greater fool" to pay more for an asset than the existing owner.
Once fear replaces greed and complacency as the herd's dominant emotions, liquidity dries up and sellers are unable to find buyers. Once buyers get skittish, they vanish. With liquidity gone, markets crash. - Charles Hugh Smith
Sir John Templeton was regarded as a contrarian investor and mutual fund manager who founded the Templeton Growth Fund in 1954. Templeton was an avid traveler and is known for his global investments.
"Bull markets are born on pessimism, grown on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell".
This Is A Time To Be Patient.
Never cut a tree down in the winter. Never make your most important decisions when you are in your worst moods. Wait. Be patient. The storm will pass. The spring will come.
