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Asset inflation to infinity and beyond

This time I got it wrong. I bet against Mr Market and the Fed. It's never a good idea to bet against these monsters... I am probably not the only one who got it wrong, but nevertheless... it pisses me off! All signals except one or two are saying that a recession is coming, and that it's time to go risk-off. But the remaining one or two are stubborn and powerful. They have all the money in the world: they print it! So what's next? I'm going to open the crystal ball up to end 2020...

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Mr Market is uninterested in bears and risk. If there was a criminal organisation behind this, we would think they do a very good job (as a crime!). Anytime there is a little volatility spike, it gets crushed, like by magic. It's not easy for me (and most people I would think) to get a grasp on where we are going, but the past 6 months have given us a big hint. The King of US is in fact Mr Market. Haha! At last, we know who you are!

Market down 🤔? Tweet hope 😎, Market Up 😋!
Market up? Tweet satisfaction 🤑, Market Upper 😇!

So here is how I see it now. The King of US is the Commander in Chief of the World economy. He knows and sees that 90% of the signals predict a recession now, all over the planet. But he is unfazed. Because he also knows that with the Fed in his pocket, he can print his way out of there. Because if the Fed just even hints at printing, you have the ECB and all other Central Banks starting printing in advance, to make sure their currencies will not strengthen against the mighty USD. Mind you, in this little planetary village, every chief want their little stall to thrive, and the only way is to be more competitive than the neighbour. It's a race to the bottom, and there is only one thing to understand: how much more of this new money printing?

From 2008 to 2016, the top 4 Central banks have printed roughly as such: $3.9t (trillion) by the Fed, $2.9t by the BoJ (Japan), $2t by the ECB, and $0.5t by the BoE (England). Total over $9 trillion, or around more than $1t per year on average. If you remember the conclusion of what money is, from Out of the Rat Race, the total value of Gold ever mined on Earth is worth less than what was printed in a few years. That gives us an indication of the scale of money devaluation which took place. As per the second effect of this money printing binge (remember the too important second effects?), my home has kind of doubled in value. It's normal, it's an asset linked to inflation + the magic of the invisible man (hidden inflation).

Then the Central Banks paused the printing. Shortly, as a consequence, nearly all signals started to go down, with a recession looming. So a few months ago, at nearly peak market time and without a recession yet in the book, they decided to resume the money printing. Over 6 months since early October, the Fed and the ECB alone will print around $420 billion. That's what we know today, but more will surely come if the King of US gets more pressing. So we are back to money printing slowly on par with the 2008 recession, but without the recession! 😳 As per the second effect (again!), someone just bought a banana duct-taped to a wall for $120,000 this week 🥳.

And you have zero risk on betting that the King of US will continue to press, for just one simple reason: the new King of US is set to be elected in Nov 2020, and he is up for renewal. So unless some humongous catastrophic event happens, the likelihood is that until Nov 2020, the planet is going to print like never before. Who cares about a recession coming or not? He wants his re-election, and he will get it 🤑! As a consequence, most financial assets which are leveraged on inflation (stocks, properties...) will get a big boost.

I give you an example. Remember Apple? Early September, the stock was at $200. When I wrote about Apple early November, the stock was $245. At this time of writing, it is now over $270. So in 3 months, that is a 35% increase. Asset inflation to infinity and beyond!

Is there a risk on this scenario of more asset inflation until end of 2020? I see three. First, if the King of US finally gets impeached in the coming weeks/months (as the process is now launched), I fear that we will be without the constant pressure on the Fed, and therefore a potential air pocket that could have a minimum of 20% downside. Second, there can still be the case of a global geopolitical event. It does not seem likely, but if it happens, it could be a wild ride. Third, and this is the most important one: I just gave up on being bearish for a year. My historical win ratio over Mr Market does not make me too confident. Just as I threw the towel, it could come knocking with a big smile and a even bigger pooof moment with no end in sight!

To your journey!

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