The conclusion is simple, the only way out from the huge debt burdens is to sacrifice currencies. This is how it has been done historically. The percentage of gold or silver in coins was constantly getting lower. As for FIAT currencies, you have inflation that slowly but surely, eats up their values. Many don’t think about inflation because it has been low for the last two decades. But, you never know when it can crawl back, especially given all the money printing, cheap debt and practically free money that floats around.
Something that has been happening for a long time now, but it happens through small steps that you don’t really notice. Also, it happens in a few areas where there is limited supply.
For example, Harvard
tuition costs rose from $40,000 in 2005 to the current $67,580. If a home
in Amsterdam cost €100 in 1990, today is costs €500. We don’t even have to
mention stocks, up 30 times over the last 35 years and many forget it, but
buying stocks and other financial instruments is the cost of your retirement.
The higher stocks go, the more expensive it will be to retire as you’ll need to
save more and more to build a nest egg and create an income yield. So, I would
argue that we don’t have to wait for inflation, inflation is already here.
You have two inflations, one that is measured statistically
by the government and adjusted for, improvements in the quality of the screen
on your phone, for example. And you have real inflation that tells you how much
does something cost. The difference is staggering and trust me, in life, it
only matters how much something costs, not whether it has a 4k or 8k retina.
Figure 9 Real inflation is double what you might think
The message here is pretty clear for bond investors; if
you wish watch your money burn, hold long-term bonds.
All the above sound a little bit like a doom and gloom forecast. If you look at the global GDP map, developed countries show slow growth alongside all their debt issues. A recession has been due for some time now and stock market valuations are high. However, this doesn’t mean anything. A recession can come, but it can also be a mild one, like the ones in 2001 and 1990.
On currencies, nothing to say there except that in history, if you look at it from the Roman empire onward, currencies have always been sacrificed. Thus, the message is to invest in real assets that have limited supply. The best way is to invest in businesses that have pricing power.
For example, real estate that has a competitive advantage, businesses that have a moat, miners that provide production safety and have a competitive, low cost, advantage. It is tricky to invest in gold for inflation protection because it doesn’t produce anything, so you can only speculate with it. In any case, see how that fits your portfolio.