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not only am i calling for a bust i'm saying the potential is there because of the leverage i mentioned the potential is there for this to be the largest global financial crisis in history just the size of the leverage on the system and the missteps i think could happen here uh or the fertility that could lead to things unwinding quickly we could have something bigger than 2018.
well i i fear that the global economy is going to remain uh fragile there was supposed to be a strengthening of economic growth but we're now witnessing a slowdown of growth at the time where inflation is rising and i worry that actually the rise in inflation is going to be not temporary but also persistent over time and the slowdown of growth is going to also be persistent the reasons are too on the demand side i think there were very loose monetary policy and unconventional very loose fiscal policies also unconventional and we're moving to a world of debt monetization on a permanent basis as you have large stocks of private and public debt and central banks are in a dead trap and they cannot exit so easily unconventional policies on the supply side i think that the bottlenecks to supply on the goods market labor market are not just transitory but more persistent i feel like in the 70s we could have perpend negative supply shocks identify several of them the globalization and protectionism balkanization of global supply chains aging of population advanced economies and emerging markets uh restriction to migration from poor to rich countries decoupling between us and china on technology trade data information investment we have also global climate change is damaging production agriculture and increasing uh both energy prices and food prices i think that global pandemics will be permanent and endemic and cause up self-reliance and export controls we also have cyber warfare that damages production or if you want to protect yourself you have to spend a lot of money and that's going to be expensive and finally you have a backlash against income and wealth inequality with fiscal policy now for labor for union for workers might be the right thing to do but raising the labor share in gdp is going to imply a wage price spiral so in the 70s that led down to to all shocks that led to stagflation slow growth recession rising inflation here identify potentially nine supply shocks that could reduce growth and increase cost of production lead to a wage price battles and if monetary fiscal policy remain loose that can lead to a de-anchoring of inflation expectation and lead to high inflation and stagflation at the same time finally in the 70s where the stagnation problem but that ratio were low after the global financial crisis were the diet problem too much rather than public diet but it was a demand shock and yet low flation if not the deflation the worst could be in the future we could have the worst of the 70s with circulation and the worse of the post gfc situation where you had a high debt ratio that's why i worry about the stuck inflationary that crisis those are the kind of things that over the medium term starts to fail if i'm honestly brutally honest i think 22 is is this is going to be the single biggest macro change here in history from uh from a point of view that we are the end of the road of everything you know quantitative easing doesn't work anymore it's political uh untenable because it plays to the risk feeble basically in the narrative of the of the left the ability of fed to produce electricity is zero the ability of the political spectrum in the us to do anything in a midterm election nada zero so we are left at the destiny of a market with ninety percent government control but at ninety billion government control is just going to get things worse you would have to have valuations about 70 below where they are right now in order for stocks to be at levels that have historically been consistent with historically normal equity returns of about 10 percent and so so when you look at that that curve what you're really seeing there is is not so much a projection but a relationship it's a relationship between current valuations starting valuations and subsequent returns now the level that we're at historically would normally be associated with expected returns of about six percent negative annually over a decade i would say i think the odds are that this bust is contained pretty much within a like a 12-month period and i'm talking about from a standpoint of the statistical bus the negative gdp part of the bust um and the you know the involuntary liquidation cycle i think most of that will be kind of within the 12 to 18 month time frame probably closer to 12.
um you know the market the bear market i think will be faster than 2008 nine uh and particularly the the bulk of it that in 2009 the biggest part of the bear market even though it started in 2007 or topped in 2007 the the bulk of the bear market was you know october late september 2008 to march of 2009 so using that is kind of the bulk of a bear market i think this one could happen faster than that so you know peak to trough you could be down 80 and you could have it happen in you know six to nine months time frame this is going to end very very very badly to repeat the better it gets the worse it's going to get when it comes to an end i would suspect that when it ends we're going to have the worst bear market in my lifetime you
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