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Historically the stock market has done very well, I’m skeptical that it can show returns like it has in the past very long into the future. Given current economic conditions we could easily enter a depression and stocks can be depressed for decades.
Here is why, prior to 2000, if companies were unprofitable they failed. When this happened significantly in the market there was a recession where bad companies went out of business and their assets and book of business was bought by a good company. In 2000 during the dot com bust the fed swooped in lowering rates and bailed out lots of companies.
Again in 2008 the fed jumped in, pumped the maker full of cash, and propped up the market.
This resulted in a bunch of zombie companies, that did not have profits that survived on debt accumulation.
In 2020 this process accelerated and now about 1/5 publicly traded companies are zombie companies that exist because the fed is buying corporate bonds and injecting basically free (near zero interest) into the market. These companies would go bankrupt without government cash infusion. The total debt load is around $3 trillion dollars.
There is also a massive amount of leverage in the stock market, cryptos, and paper commodity markets.
With all of these factors in play, one prick could bring pain in the markets like we have never seen before. The fed has been burning up it’s available tools, so we are on a much bigger cliff than we were in 2000, and then in 2008.
On top of this we are experiencing rapid inflation, and the only way to fight inflation is dramatic increases in interest and to slow the velocity that money is turning over.
But there is the run, killing inflation will cause conditions where leveraged positions have margin calls. Zombie companies won’t be able to borrow money at near zero interest to float operations.
The fed has but 2 real options left in the next crisis, negative interest rates where you actually pay companies to borrow money, and direct stock purchases to prop up stock prices. Everything else is already deployed.
It’s impossible to predict when the pin will prick the bubble, bubbles can go on much longer than one would expect, but when it pops there is ample fuel to drive the market into a full on depression.
Right now my portfolio is heavy in land, commodities, and highly profitable, high dividend paying stocks that are super boring but have no real completion and are difficult to compete with. These companies may lose stock price value, but so long as they are able to continue returning dividends, it’s better than following a stock down hoping it will rebound as the only way to recoup some capital for reinvestment.
I also have a fair bit, maybe 30% in cash. When the markets do crash, whenever that is, I want capital to work with if rare opportunities present. Yes cash has inflation risk, but if the markets do tumble it gives me options without liquidating assets I’m a fire sale to try and but something else.
One interesting commodity play, is gold streaming and royalty companies. Read up on these to understand why they will be hugely profitable if gold sees an outsized rise in price.
Remember, wealth does not evaporate, it just shifts between different classes of assets. Money is just a medium of exchange for purchase, it has no REAL value, wealth is control of assets.
So...you mean our economy right now looks like Voldemort sucking on the unicorn blood, trying to barely stay alive, you don't say....?
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