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Autopsy of Zombies

How long do you have to wait before the dead patient has to be pronounced dead for certainty? In the week of the Corona Virus taking world stage, it's a bit of a bad taste question, but I have to raise it, because in the financial world, I see two dead patients, and a line of incoming moribund ones. In the financial world, death can be excruciatingly slow, so in doubt, I preferred to call them Zombies. Let's dig deeper into the zombies who are responsible for creating money.

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Let's start with this one. Let me introduce you to Japan.

Alive and kicking until around year 2000, then kind of on the death bed. The 2008 crisis made the patient breath in and out for a moment, but then it's complete coma again. Is it dead? I would say yes. What are the chances of the graph suddenly moving lively as in years 1970-2000? I'd say none. What is the best bet of future prediction? Continue the flat line for ever...⌛ That looks like a good bet 🤔

To be more exact, this graph is the cost of money set by the Central Bank of Japan. As you can see, since year 2000, money has a cost of nothing where the sun rises first.

Next patient please! Let me introduce you to the Eurozone.

Not to be misinterpreted with Europe, which just lost a star yesterday (bloody Brexit!), the Eurozone dictates the value of money in 19 countries. I'm not going to bore you with the same kind of dissection, but come on... unless it breathes in and out because or Corona Virus in the upcoming months, Eurozone is also dead! Admittedly, it died later, around 2015, but the pattern is the same, and Dead it is pronounced!

Now that we have two dead patients, let's see what it means...

  • Money cost zero, so the states gorge on cheap credit and take on debt like never before...
  • Money cost zero, so large companies gorge on cheap credit and take on debt like never before...
  • Money cost zero, so savers lose money when saving (the inflation eating man is there)...
  • Money gives zero, so savers buy into more risky assets (stock, property) which makes these assets skyrocket...

My friend, everything is linked: in the midst of the 2008 crisis, the cost of money was set to zero so that the troubled (mostly western) countries could load on debt at virtually no cost. As as side effect, many large corporates jumped on the opportunity and took on massive debt.

There is now so much debt around (countries, corporate, and individuals) that it is not possible to raise the cost of money, or every single one of these too-big-to-fail-all-powerful zombies will crumble under their own weight of debt. Therefore the cost of money must remain zero. The Central Bank patient is dead and the resurrection event is only going to happen when the God of Central Banks comes down to save Earth (so far, nobody knows about this god 😇).

I repeat: so much debt has been accumulated, that higher rates are virtually impossible to sustain the humongous amounts of debt. Once the patient is dead, it is dead... Interest rate at zero for ever... As Japan showed for over 2 decades now, and as Eurozone is showing (Euribor 12 months is actually -0.26% 🤕).

And now, for the next two... Looks like Brexit was such a powerful event that the UK Zombie blinked. OK, let's say a blink counts for being alive for a few moments 😅. Place your bets: will Brexit make UK alive again, or is it too late? I sincerely don't know. I believe that the only way forward for UK is to become (slowly but surely) a tax-heaven at the doorstep of the Eurozone, siphoning all Euro assets into a capitalist-friendly island. Time will tell, but for sure, the wealth of future UK is predicted on the patient waking up and jumping up sooner rather than later.

And then there is the mighty USA. Although it got knocked-out after the 2008 crisis, it opened both eyes a few years ago. Now, do not be mistaken. This one is a zombie too. I will give you two more graphs to convince you of that (debt is totally out of control 😳).

As we know, a good part of the world (the one who calls itself the most advanced) is drowning in debt. It can only be repaid if the cost of money is kept at zero for decades. As a consequence on the autopsy of the Zombies, this is how I see the escape route for individuals:

  • Get a decent salary
  • Leverage your salary with bank loans at near zero percent
  • With the debt, buy cash generating and appreciating assets
  • Rince and repeat
  • When safe enough, get out of the Rat Race, and continue the game of leveraging money at zero cost for decades

To your journey!

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