Multiple expansion and debt financed asset inflation

[kjpliny]

I found this information recently published by Sven Henrich very interesting. I wonder if the investing landscape will change from the current paradigm over the next year or two.

Does this information make anyone else a little uncomfortable with the current markets? Seems like a very good macro analysis.

 

[chassis]

Can you unpack it for us? What is the summary of the link? What is your take on the questions, and what investment changes are you making, or not making, as a result?

 

[Koolau]

Can you unpack it for us? What is the summary of the link? What is your take on the questions, and what investment changes are you making, or not making, as a result?

Agree. An hour plus program may or may not be worth a look. A summary would be valuable in deciding whether to commit the time.

But, to answer your question, yes, I think the investing landscape will change. I just have no idea how! YMMV

 

[kjpliny]

He is basically presenting a variety of charts and data that indicate the expansion in asset inflation (stocks) has a direct correlation to central bank intervention and increasing government debt despite flat earnings and disproportionately slower GDP growth and lower labor participation rates.

He also refutes, with data, the Fed's public position on "how their actions don't contribute to income inequality" and how their policies are encouraging and supporting speculative risk taking in order to keep the asset bubbles going.

The main takeaway is that central banks are actually causing the very problems they are being hailed (in the media) as heroes for "fixing" with their flood of liquidity and low rates. Their forecasts for growth, unemployment and interest rates are historically inaccurate. The markets and economy are very vulnerable if the Fed loses control. They could not prevent the March correction (they had to take extreme actions to reverse the fall), and he posits that they won't be able to prevent the next one either.

His technical analyses and honesty are laudable. Well worth the hour of time invested IMO.

 

[OldShooter]

I have the same question for all of these guys: "If you can reliably predict the future, why are you hustling an investment letter when you could be retired and be as rich as you cared to be?" The answer has to be one of two things: The hustler doesn't trust his own advice, or the hustler has tried taking his own advice and found it to be bad. I think there are more of the former than of the latter.

 

[kjpliny]

He's not stupid enough to try to predict the future, but he's pretty clear on what he concludes the current market drivers are. Investing in an artificially inflated debt fueled "market" may have risks that the average person doesn't realize if they ignore or disregard this kind of information, assuming that the narrative is automatically biased or based on alternative motives.

I've been following Sven for years and I have a very keen bullshit detector. He's as straight a shooter as I have seen in financial media.

 

[OldShooter]

The question remains the same. If what he is hawking actually has value for investors, why is he not doing it instead of selling it?

He may be a straight shooter. Many of these newsletter peddlers probably are. But if they aren't hitting anything useful, what's the point?

 

[kjpliny]

I'm not an active trader, so technical market analysis doesn't really play into my investment philosophy. I enjoy absorbing this kind of information to increase my awareness of macroeconomic trends which may be useful in understanding long term risk. If one's asset allocation is appropriate for their risk tolerance and investment goals, none of this is actionable. However, managing risk is a very prominent driving factor in my life...in more aspects than just financial risk, so I tend to gravitate to information that helps me to understand things that are happening around me that don't automatically make much logical sense at first glance. It helps me to feel grounded, for lack of a better word.

 

[Koolau]

He is basically presenting a variety of charts and data that indicate the expansion in asset inflation (stocks) has a direct correlation to central bank intervention and increasing government debt despite flat earnings and disproportionately slower GDP growth and lower labor participation rates.

He also refutes, with data, the Fed's public position on "how their actions don't contribute to income inequality" and how their policies are encouraging and supporting speculative risk taking in order to keep the asset bubbles going.

The main takeaway is that central banks are actually causing the very problems they are being hailed (in the media) as heroes for "fixing" with their flood of liquidity and low rates. Their forecasts for growth, unemployment and interest rates are historically inaccurate. The markets and economy are very vulnerable if the Fed loses control. They could not prevent the March correction (they had to take extreme actions to reverse the fall), and he posits that they won't be able to prevent the next one either.

His technical analyses and honesty are laudable. Well worth the hour of time invested IMO.

Quite honestly, I would agree with most of what you point out here. "You can't fool mother nature" comes to mind. If you dump trillions of dollars into peoples pockets that don't need the money to eat, they'll put it into the markets. Markets get inflated and, then they (eventually) correct. It can't be put off forever UNLESS in the mean time, the "real" market (the one that makes and sells stuff) "catches up" to the paper markets. IF that happens, we're all happy and (almost) everyone wins.

I've just told you way more than I know, so YMMV.

 

[kjpliny]

Sven put up a page with some of the info from the video:
https://northmantrader.com/2021/01/04/2021-the-alternative-view/