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the market today which feels superficially like 2000 and I think is going to play out initially like 2000 and then unfortunately it's going to phase As He suggests into the 70s where the deflationary effects on the economy and the stock market um will re will result in a world rather like the 70s where all assets are simply much lower price than they are today welcome to finance Capital where we visualize Finance from the world's brightest Minds don't forget to smash the like button and subscribe to us um a word on on inflation too I completely agree with Ray on on the short term problems which I I would summarize as monetary and and and general Federal Reserve over stimulus for 30 35 years the war and covid all of those three influences guaranteeing that we have uh relatively intractable problem in the short intermediate term but what what worries me is the longer term Arguments for inflation which is one we are running out of people in China where the 500 million extra farmers precipitated globalization they have now had diminishing cohorts of 20 year olds for 20 years and they are guaranteed since they're alive now we know the baby cohorts are dropping like a stone they are simply going to have a shortage of Labor as is the developed world together that is not a trivial block the developed World Plus China all of them will be squeezed for labor after the Bubonic plague they had a hundred year honeymoon period in which wages went up so much it wasn't reached for another several hundred years in the industrial revolution and we are entering a period where labor is simply scarce which feels to me inflationary and at the same time we have a scarcity beginning in resources and we keep an original unusual uh index a GMO it's 36 equal weighted important the most important Commodities so it's not dominated by oil and it showed a declining pattern for 102 years from 1900 to 2002 and yes it was interrupted by World War one and World War II and OPEC why wouldn't it be but it wanted to go down it went down 70 it took the index down to 30.
today 120 two years later the index is down 10 percent it has gone to 90. the average important commodity has just spent the last 20 years going from 30 to 90. it has tripled the reason is of course the growth of China but I believe fairly passionately looking at the data that it also represents uh the intrinsic scarcity the war between deeper wells worse iron ore Etc the best go first the struggle is always between technology which for a hundred years got ahead of scarcity it was two paces down for deeper and three and a half Paces up for technology and now we've reached a phase where we've gone through that stuff and now we have two paces up for technology and three Paces down for scarcity we the data is screaming at us now for 20 years that we're beginning to run out it doesn't and a war of course and covid were so fragile all you have to do is cough now and it ricochets around the world in price spikes and and and and and sure outages and bottlenecks and that is the world we better get used to living in we're going to have a world of increasing number of bottlenecks and shortages and the same applies to food the UN food index is higher today than any time in its history of the last 50 years since it started okay so you you've you have price pressure on raw materials Metals food you have price pressure long term on labor this surely feels like a new era in which uh inflation will be part of the background music just like it was in the 20th century and perhaps more so the risks of a debt bubble breaking and the rest of an equity bubble breaking have simply not been understood by our Federal Reserve since Paul Walker they are incredibly naive they haven't even got a clue they're not even interested in the idea the idea Bernanke is saying are the U.S housing markets always has never declined it merely reflects a strong U.S economy Alan Greenspan encouraging etc etc um right through until today they don't realize that they're playing with such fire my second point high levels of debt are are just far too often seriously dangerous and should be in general discouraged actively that should be one of the responsibilities of top management including the FED Etc and let me just give you an example why why do you like low rates because it encourages debt why do you like more debt because it encourages growth that's the idea so let me give you the ultimate statistical test of that we start in 1985 and we have been modestly increasing the debt to GDP ratio all debt together uh just drifting slightly up due to technology and then the technology I mean the introduction of more and more sophisticated financial instruments but not Rising dramatically and then in 85 it kills to a 45 degree angle and shoots across any page and goes from about 1.1 times GDP to well over three so in that little window of 35 years we triple the debt to GDP ratio it's a big chunk of time it's the biggest most important economy on the planet a pretty good test so what happens to growth it inflicts downwards and from 85 we grow more slowly Grant you there are many other factors that work it's a complicated picture but there is little room in that equation for the idea that law that creates more growth it is not proven in the data it is held to be the case it is an assumption like most of modern economics but it is not proven by the data I would suggest that there is no evidence at all that increased levels of macro debt to GDP have anything to do with growth they have everything to do with higher risk though from time to time always considered myself a fairly serious amateur historian what I've done in bubble territory is I I don't try and build models to explain every day as you guys do I I focus on the four Great bubbles but which are characterized by nearly hysterical Behavior really seriously weird over optimism which is very rare and which are characterized by accelerated prize moves on the upside um and um and and by a weird uh deviation on the upside between the Blue Chips going up and the risky stocks going down and that that is rare as hence teeth it happened brilliantly in 29 it happened during the year 2000 again in Spades with the s p x growth continuing to go up through September of 2000 and the growth starts basically going down 50 and the and the internet stops dropping maybe 60 70 by then so that was spectacular and we saw a very handsome deviation between the s p Rising last year and the Russell 2 for example dropping quite handsomely so there was a 20 25 point spread on the upside and that for me is a pretty good indicator and I tell you what it describes it describes Mr Prince's I've got to keep dancing because the music's still playing and we understand that completely the enormous commercial imperative of the industry to play uh up to and over the edge but they're not complete idiots and so they say well I've got to keep dancing but I don't have to keep dancing with Puma Tech the most advanced stock in 99 I'm going to transfer to Coca-Cola and I'll keep dancing it off the edge but I'll go off with Coca-Cola and it works the Coca-Cola's maybe handsomely overpriced but in 1929 and 2000 2001 and so they always go down a lot less as the bubble breaks and that's the phenomenon that causes this very rare indicator of impending doom which we saw last year and so by early this year it seemed clear to me that this was not only The Real McCoy bubble which had been clear for a year or so in terms of pricing and enthusiasm but it it had triggered this very rare uh indicator of impending doom in other words now and so uh our piece of a year and a bit ago was called waiting for the last dance and our equivalent follow-up this January was let the wild rumpus begin I.E We're In It dudes and I do believe we are and I I believe that the clients will be very substantial feel free to let us know your thoughts on the comment section below and if you enjoyed our content please like the video hit the Subscribe button and 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