…continued from Part I.
Hopefully I didn’t bore you with ancient history and you are now reading …
Part II - The Big Six
The basic idea behind this series of posts is that I have never before experienced such extreme conditions in the economy, geopolitics and markets in 40 years as a finance professional. Same holds going back further in history.
In my opinion, these are the most worrisome underlying fundamentals today:
- Scale: everything is larger and bigger. Global population, GDP per person, debt, consumption, pollution.
- Speed: computers have made everything faster. Communications, transactions, manufacturing, transportation, logistics, decision making. Reaction to anything is nearly instantaneous.
- Climate change and habitat destruction: we are destroying our human habitat at an unprecedented scale and speed.
- Risk appetite is at an all time high: Stocks in the US and EU are trading at heroic multiples and interest rates are zero or negative. Even recent bankrupts (eg Greece) and companies with junk ratings are borrowing at near zero interest. Central banks’ gusher of money is completely obscuring the dangers.
- Generation gap: young people who grew up with game and chat apps view markets as just another game. Their heavy participation in daily “meme” trading is very apparent and defies all common sense ideas on investing.
- End of Empire: the US was the undisputed global Empire for the past 100 years. This is no longer the case, as a resurgent China is now more determined and ready than ever to claim primacy, whilst America is riven with internal political, social and economic divisions. The previous switch of Empires created WWI and WWII - and it didn’t even involve a direct confrontation between the old Empire (British) and the new (USA). It was just Germany and Japan who thought they could squeeze into at least some of the vacuum left by Great Britain. Today, the confrontation is direct: China vs USA.