| A Once-in-a-Lifetime Opportunity to Invest in Strategic Assets
The following article is the investment strategy that I derived based on my understanding of the current global economy, capital market, incorporating economic and financial theories, macroeconomic trends, economic/market data, and geopolitical issues.
For more details underlying the statements of this article, please refer to my previous work: Subject 60094
1. Major economies around the globe, including the United States, have all entered the end of the economic cycle. Each economy has all the ingredients ready for a recession or even a depression.
1) A prolonged period of “borrowing for repaying” will eventually lead the debt market to crash, whether in a setting of countries or companies. Looking across the globe, none of the major economies NOT relies on borrowing new debt to repay the old debt, thus fueling the bubbles and keep them afloat by accumulating total debt and pushing up the asset price to maintain a minimal economic growth.
2) The longer period that the excessive home price and asset price hold, the weaker the economic growth will be. Eventually, the bubbles will burst, leading to depression and a chaotic society.
3) The prolonged period of having low, zero, and negative interest rates, printing money, and bearing over $15 trillion worth of debt with negative yields not only indicates the level of weakness of the global economy, but it also implies a severely distorted economy, which will eventually bring the economy toward a recession or even a depression.
2. The global depression and the collapse of the international credit and monetary system will surface together.
1) Traditional safe-haven assets, namely the US debt and the US dollar, have already become risky and even toxic.
a. The treasury of the US, along with that of other major economies, has completely headed to a one-way-trip – “Borrowing for Repaying”.
b. Like the EU and Japan, the US has picked up the pace of monetizing its debt.
c. As the NO.1 reserve currency, the US dollar has been weaponized to threaten and sanction other countries instead of being neutral.
2) Most of the international reserve currencies have become a basket of “rotten apple”.
a. In the past, the US dollar was relatively better than the Yen and Euro, even though they were all bad and became worse and worse. Therefore, when there was an economic shock, the capital would flow to the US dollar and US securities, including the debt.
b. Now, like the European debt and Japanese debt, the US debt has been monetized faster and faster. Going after the Euro and Yen, the US dollar is racing toward zero-yield or negative yield due to the prolonged period of QE. The basket of “relatively rotten apples” has become “absolutely rotten apples”. None of the reserve currencies is reliable. The international monetary system is approaching an endgame.
3. Bubbles popped in any one of the US stock market, the Chinese housing market, the European debt, and the Japanese debt will drag the global economy down deeply, just as what happened after 1929.
1) The P/E ratio of over 22x of the S&P 500 has an underlying economic growth expected to be less than 2%. Regardless of the absolute price or the relative price, the US stock market has a much higher price than 1928, right before the Great Depression began. Just as before the Great Depression individual investors levered themselves up and pushed up the US stock price, this time companies take advantage of the extremely low-interest-rate environment to lever themselves up, repurchase, and thus to drive up the stock price.
2) Being the city with the most growth potential and growth quality in China and the home of Huawei, BYD, ZTE, Tencent, DJI, and etc, Shenzhen (so-called “China’s Silicon Valley”) has a housing-price-to-income ratio of over 35x, much higher than Hong Kong, which has always been the most expensive city in the world during the past decade. The housing bubbles in China overall will only make the Chinese economy grow slower and slower until the bubbles burst, bringing the country to a recession and a depression.
3) If any member of the major economies could not continue to borrow to repay, to QE, to further lower its interest rate, the cost of borrowing would go up, causing the debt of that country/region to collapse and dragging the world into a recession.
4) For the following six years since 1929, the Dow was continuously down, with over 89% loss from its peak. Not until 1954 did the Dow recover to the pre-depression level, which took 24 years. During that period, all major economies all had unemployment rates over 20% and GDP losses over 10%, with some around 30%.
Compare to the time before the Great Depression, current major economies have already fired most of their ammunition to combat the next depression since the last financial crisis. The debt has already been unsustainable and there is no room for further rate cuts, making the current moment a once-in-a-life-time situation.
5) We are currently in a room with countless gunpowder barrels. The sparks that can ignite them could come from anywhere such as the trade disputes, Boeing, Middle-East, and liquidity.
4. Do NOT let this ONCE-IN-A-LIFE-TIME opportunity slip.
1) At the end of an ultra-long economic cycle and on the nights before the international credit and monetary systems collapse, right now it is the greatest timing to seize the moment and invest in strategic, scarce assets such as gold, silver, agricultural products, and other scarce resources.
2) The core of our investment strategy and portfolio focuses on such assets mentioned above.
01/07/2020 |
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