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Economic View

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Three themes to consider

You should narrow to what you think are the three most important big-picture themes impacting an investor today. It is difficult to reflect any more than that.

Our three themes are:

  1. Data from the past 40 years is largely irrelevant for use in projections looking forward.
  2. There are significant challenges with debt and demographics.
  3. We are facing an extreme tension between the forces of inflation and deflation.

 

1. Data from the past is irrelevant in predicting the future

Over the past 40 years we have seen the following major trends:

Moved from generational highs to generational lows

  1. Interest rates
  2. Inflation

 

Moved from generational lows to generational highs

  1. Equity valuations
  2. Government debt
  3. Money supply

 

Our view:

Repeating that history is the least likely scenario, if it is even possible. Investors are better served disregarding that data or assuming these trends may reverse course.

 

2. Debt & Demographics

Debt

  1. The United States has a lot of debt.
  2. We do not balance our budget.
  3. Total debt is projected to grow as far as we can predict.

Demographics

  1. Population age 65+ growing at a fast rate.
  2. We have a continued decline in the number of workers per retiree.
  3. We promised people 65+ health and income benefits.
    • We have not set aside enough money to pay those benefits.
    • On average, this group has not saved enough for retirement / is not financially independent.

 

Our view:

Either challenge is daunting individually. Facing both challenges has big economic implications. If you are under 65, these challenges will reach tipping points in your lifetime.

 

3. Tension between inflation and deflation

  1. Like tectonic plates, extreme forces of inflation and deflation are pushing against each other.
  2. In the short-term, the counter forces create a perception as though little is changing / the world is much the same.
  3. In the long-term, history demonstrates it is likely that one side will overcome the other with potentially extreme force.

 

Our view:

United States policy will favor inflation over deflation.

 


 

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Additional resources

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