“Investing” in the 2020s

Written Apr 15, 2021

  1. The main effect of financialization is serial asset bubbles. Both the market peaks in 2000 and 2008 were the result of asset bubbles. All asset bubbles eventually burst (causing boom-bust cycles). Both the 2000 and 2008 bubble bursts were “uh-oh” moments having less to do with specific bad actors (Worldcom, Enron, Healthsouth; and Lehman, Bear, AIG) but more to do with realization of systemic toxicity in the financial sector. Yellen made sure there would be no more “uh-oh” moments under her watch by keeping the pedal to the metal, printing like there was no tomorrow. Notice the stock market rise was at a steeper angle under her “financial engineering”. (I detailed the mechanics in my other article Global Economy in the 2020s.)
  2. Since 1987, the established pattern by the Fed in response to any asset bubble burst has been blowing a bigger bubble by creating more money out of thin air and funneling it into the financial markets. The 2020 Covid global shutdown gave Powell the perfect excuse to outdo all past Fed chairmen with “Whatever it takes” money printing, — with no limit or end date. The stock market is now in a spectacular VERTICAL CLIMB.
  3. A rising stock market propelled by money created out of thin air is a statement of the money’s debasement. (The same principle applies to real estate: A $60K house in 1970 is now worth $1M not because the house is 1,500% more valuable, but because the currency is only 6% of what it was previously worth.)
  • “Growth” (such as Tech) stocks will languish because discounted cash flow at higher rates will render them overpriced.
  • “Cyclical”/”Value” (such as consumer discretionary) stocks will benefit because of pricing power from shortage.
  • Bank stocks will rise with a steepening yield curve.
  • Treasury bonds will tank.
  • the yield curve will flatten (remember inverted yield curve signals recession)
  • Gold, commodities, cryptocurrencies and some foreign currencies will benefit.
  • Treasury bonds.

A Boomer, I write to encourage and inspire Millennials, because they are crucial in restoring the middle class which is fast becoming extinct.