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so in every 50 to 75 years the world presses a reset button this has happened all throughout the last 200 year history and every time a reset button is pressed it creates a massive financial distress so let me explain this point by taking you to this chart and you will see that the world has existed in different different Cycles this was cycle one this was cycle 2 this was cycle 3 and now we are in this cycle 4 and at the end of each of these cycles for example here here here and here what happens the total debt on the world actually comes down and you can clearly see this this is the US debt in percentage of GDP terms it has come down at the end of every single cycle whenever that happens the stock markets crash the debt market crash almost every major asset class crashes and it creates Financial hoc Mr R alio who is a billionaire hedge fund manager he has written an entire book around this which is called as the changing World Order you could consider reading it he has also written a LinkedIn post recently where has reaffirmed this belief regarding this long-term debt cycle so on this video I'm going to help you understand three things number one I'm going to help you better understand the macroeconomic perspective of Mr ralo you could choose to read the entire book definitely you will learn a lot of new things from it but I'm going to present a very condensed version of that book through this second I'm going to tag along my analysis as to whether I see this happening or not happening by presenting and bringing forth additional data third and finally I will help you understand that as investors what is it that you should be doing how can you prepare to better handle in case such a Crisis happen so let us kick start our discussion and a very humble request that if you like these type of macroeconomic analysis videos do consider subscribing to this Channel and do like the video so that it reaches out to more people I will explain this entire complicated macroeconomic analysis in simple bullet points so that even if you don't know much economics finance stock markets you will be able to follow along so the first key point that Mr R alio speaks about is is that the world exists in the form of recessions expansions and long-term debt Cycles he has depicted this Theory by using this graph so let me help you understand this more so what he simply says is that you will frequently see graphs like these where the world is expanding here in this part and it is shrinking here then again the expansion will start and shrinkage will start a classic case in point is that the world Grew From 2009 all the way till 2020 and after that there was a crash and since then we have not fully recovered at least economically speaking and there has been a lot of negative talks around recession bursting of dead bubble etc etc so one could argue that this entire phase from 2009 to 2020 was an expansion phase and whatever is happening now is a contraction phase so this type of sine wave movement so sine wave looks like this so this type of sine wave movement are called as minic cycles and these type of Cycles keep on happening the world on an average Witnesses a recession every 5 to 7 years and that has been happening for the last 50 60 years so to cut the long story short the entire economics of the world can be tried through two types of Cycles one would be a sine wave or a minicycle which will go something like this and all this is tied together by a long-term debt cycle which keeps on exhibiting so now you will ask that okay why should I care about this long-term debt cycle and how does it exactly impact me and why are you talking about this long-term debt so here through this chart you will see that there have been a series of negative events for example in 7374 there was a bare market crash in ' 7s there was a tech crash then in 2008 there was financial crisis in 2016 there was us China trade war in 2020 there was the covid issue so if you track the data for the last 50 60 years you will see a series of negative things that have impacted the world and you would simply wonder that why has the world not gotten derailed due to all of this think about it this way that in 2020 covid crisis happened the nifty50 in India it was trading at roughly 12,500 it came down to 7,500 but when after 2020 covid when the world had stopped production had stopped the world stopped moving we all started working from home the stock market started making new high and it reached all the way to 15,000 and all of us were scratching our head that you know what why are the postco levels for the market higher than the pre-o levels if you know a better answer do stop the video and type out your answer in the comment box it would allow me to see whether you're learning something out of my videos but this specific fact points to the rot that exist in our current Financial setup so well what exactly is that rot you can see the answer from this chart now what you will notice is that every time there is any kind of Crisis be it the tech bubble be it the 2008 bubble be it 2016 bubble be it 2020 bubble what does the government do it keeps on printing more and more and more money and it gets reflected in the form of debt so to cut the long story short to handle any problem the government's solution is to increase the amount of debt that it takes it is very simple and think about it this way that if your income is not increasing but you have to increase your CER or expenditure how would you do it you would say that okay I will go and take some form of debt as long as you keep on procuring that debt you will be able to increase your expenses and that is precisely what the governments all across the world are doing so in simple words the shortterm problems that exist in the world be covid crisis be 2008 crisis be 2016 crisis that is simply converted into a long-term problem which can be given the name called as the debt cycle so I I will take you back to the previous chart and explain this point now as the government keeps on increasing the debt how does it reflect it reflects in this chart so here you can see that the Apex economy of the world if you consider its debt to GDP now it has gone up to its almost all-time high and whenever these type of previous Peaks have been made there is a sharp correction that comes so this is the Viewpoint with which Mr R alio has explained the principle of long-term debt Cycles so now comes the natural question that is this debt going to go up like this this is option one or are we going to fall from this point and a major correction would happen so for this you need to understand the next Point explained by Mr R Dalo about the nomenclature of that long-term debt cycle so if you break apart that long-term debt cycle it itself will have a lot of phases for example A New World Order is established this is step one then that New World Order increases growth and it leads lot of expansions Prosperity Etc most of it is funded by debt because everyone believes that the new kingdom is infallable so the word of the day today is infallable let me know what does that mean and they take on more and more and more debt so a dead bubble is created there is increasing wealth Gap that happens and finally the dead Bubble Burst and a lot of negative negative things start happening up until the point A New World Order is established so if you ask yourself that we are currently in 2022 which part of this long-term debt cycle we are in so what would you say we probably are somewhere here this is absolutely true there is no doubt about the fact that a dead bubble has been formed us is losing its hegemony which got formed post 1970s and since 1970s us has been the Apex economy or the primary Kingdom so to say and now its hegemony has started to come down now one could also argue that it is not only us which is witnessing a lot of internal conflicts external conflicts very high debt problems inflation problem it is also other parts of the world for example there has been a massive housing crisis in China that has undertaken Russia has lost a lot of economic Cloud there are a lot of emerging countries like Pakistan Sri Lanka that have gone completely bankrupt so if we analyze and look at the negative side of the picture and combine it with the fact that we are on the late stages of that dead bubble bursting then it presents a very negative picture now before I go any further in the video let me also put across my viewpoint because there are a lot of people who would just watch half the video they will just watch the thumbnail and they will make the impression that actually you know what one day you speak about growth other day you speak about some kind of dead bubble you are confusing audiences no I'm explaining you multiple viewpoints but at the end of the day I also have a Viewpoint so my viewpoint is fairly simple which I will explain towards the summary or the last stage of the video I putting this message simply because of the fact that macroeconomics is complicated and you will need to spend some time studying it in case you want to become a macro investor I'm linking some of the tools in the description box you could also consider joining my members Community where I make a lot of macroeconomic oriented post so let us move to the next Point as to how this current situation post 2020 how will the bubble burst what would be the primary reason for that so Mr R alio has given some commentary and I've picked these Snippets from his LinkedIn post so the first and foremost point that he says is that the debt is going to get riskier so here is the interest rate chart in the US and you will notice that it is hovering around 4% interest rate so now this is the primary interest rate it affects all other type of interest rate when you are taking a home loan you might have noticed recently that the home loan rates have gone up why because the FED interest rate or in India that is called as the repo interest rate that has gone up so whenever this primary interest rate goes up it creates impact on all the other type of interest rates that exist in our economy so back to this concept what you would notice is that the interest rates have gone up to 4% such type of interest rates have not existed for a significantly long period of time this must have existed roughly two decades ago so Mr R alio says that you know what because the interest rates are close to 4 % this is a very high interest rate holding debt is becoming riskier now why is it becoming riskier let me give you a parallel example so think about it this way that right now you're are getting home loans at 9% so probably people taking a home loan might be able to repay because 9% is okay because you are getting probably 6% FD rates and Home Loans are 9% so after a little bit of a jugar you might be able to repay that debt but imagine if the interest rate goes up to around 12% 133% 14% then what is going to happen to home loan rates well more people are likely to default so anyone who is investing in that home loan debt is taking on or investing in a riskier asset so according to Mr ralio because of this increasing interest rate there is more risks associated in terms of holding bonds he also goes on to say that because of this increased riskiness even usfed has decided to sell a lot of its debt they are planning to sell roughly 5 to 10% of the debt that it holds but unfortunately if someone is selling such large amounts of debt you need a buyer on the other hand now if the buyers are not being found then it could lead to a crash in the debt market and it will impact all types of markets that are associated with debt and just for context the size of the US Stock Market is roughly $21 trillion but the size of the US debt or the bond market is $46 trillion so this debt Market is very very big compared to the stock markets so this brings us to point number five that in order for this debt bubble to burst what needs to happen so Mr R alio says that three things need to happen number one we must be at the end of that long-term debt cycle that I've been explaining for the last few minutes we must be towards the end of it so are we there while no one can guess it looks like that we are towards the end of that long-term debt cycle he has also pointed out to two additional things that need to take place in order for this debt bubble to burst he talks about internal conflicts for example you might be seeing that there is a lot of infighting in the us for example Democrats fight against Republicans conservative fight against liberals in Germany Italy there has been a rise of far right even in India people keep on fighting under the name of politicians and keep on defending them so there is a lot of heat that has been generated that people have stopped listening even when you make a simple YouTube video there is just insane amount of hate and when it comes to politics there is just massive amount of hate this can be termed as somewhat of an internal conflict and if there is a full-blown internal conflict which will get excellent accelerated and why will it get accelerated because there is increasing income inequality around the world and if that happens that can lead to a massive paino for the world the third thing that needs to happen in order for this dead bubble to burst is something called as external conflict or an external trigger point now many are of the belief that covid could be an external trigger point or Russia Ukraine crisis could be an external trigger point collapse of China could be an external trigger point so a combination of 1 2 and three will lead to a total collapse of the debt market and along with it it will derail the stock market so now comes the last point that is there something that you and I can do to stop this long-term dead bubble from getting worst and Safeguard our investments well the short answer is very depressing the answer is actually no you and I can't do anything because if we have money stuck in debt and if major Enterprises default on their debt your money will get stuck you will say that okay cool I will move my money to the stock market with the dead bubble collapse even the stock markets are going to get crushed so whether you have your money in bonds whether you have your money in stocks both of these asset classes will collapse quite a bit so what type of asset classes will survive so for this you need to go back and study what type of asset classes has survived during crashes and two primary type of asset classes come to mind one is real estate of course you will not get appreciation on that real estate under bad times but real estate or hard real estate will not lose insane amount of value with time and the second type of asset class which will not lose value would be Commodities these would be silver gold Etc they also are unlikely to lose their value in the time of Crisis now before you start panicking and start selling all your stocks please listen to this last part about Mr R alio so he had made a recent post on LinkedIn where he has presented an optimistic picture and has spoken about as to what needs to be done in order for this crisis not to happen so there are two three key points that he has spoken again I will link the article in the description box do go and read it out you will understand it better and maybe I'll make a separate video on that if there is enough request but two three points that he has simply spoken about is that that if going forward political conflicts can be solved it will lead to a good time maybe a wonderful time it will not lead to a dead bubble crisis second key point so if the productivity levels of the world can be raised then the debt can be brought down in real terms the third key point would be around demilitarization of the world which would reduce the chances of external conflict for example you might have heard of a concept called as Mutual assured destruction which means that any nuclear country does not attack another nuclear country because they know that the first country will attack you back with a nuclear weapon and that will be the end of the world hence the word mutually assured destruction is there so while these type of balancing structures do Aras on one hand they also act as a hedge so to say so to cut the long story short Mr Rio is hopeful that there will not be a total collapse of the Dead bubble provided we move towards these lines finally what are my viewpoints do I agree with Mr R alio do I not agree with him so first and foremost he's my idol I have been following him since the time I was in eth or n9th standard so I do agree to his commentary but at the same time as an investor I'm continuing to pump in money in the stock markets debt Market crypto Market even real estate market so these are assets that I'm purchasing with time and I would continue to do it because even if I assume the worst case scenario that the dead bubble completely collapses there is not much that I can do but if I keep on Imagining the worst case scenario meanwhile the government will keep on printing more and more and more money will Jack up inflation and I will lose whatever money I have therefore it is critical for me to invest in a well balanced format and therefore I a very big advocate of being a diversified investor I hope you enjoy the video do press the like button and I will see you soon
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