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Marc Faber: Markets Are In A Bubble & Will Deflate 50% In Real Terms! (Aug 29, 2024)

Wealthion...

Summary

 
 

Marc Faber predicts a 50% market deflation in real terms due to a huge financial bubble and high inflation eroding purchasing power.

 

  • The financial Market is a huge bubble and the real economy is just a small part of it.
  • “I distinguish between consumer good inflation and asset inflation” when evaluating the impact of inflation on the economy.
  • The rich love inflation because it’s a tax that touches other people, not them.
  • The result of high home prices is that most Americans can’t afford to buy them, and many can’t even afford to buy groceries.
  • Warren Buffett and Charlie Munger’s success is not due to being more intelligent, but rather more disciplined, focused, and patient than other people.
  • The US debt problem is much larger than reported by the media, with astronomical unfunded liabilities that will likely continue to grow under the policies of both major parties.
  • Regardless of who wins the election, it’s going to be bad for the economy due to excessive debt and lack of revenue to service it.
     

Here are the 3 categories to sort the insights:

 
  • Stocks of popular sectors like semiconductors, the FANG stocks, and the Magnificent 7 are going to “sleep for the next few years and they will sleep very deeply in other words by going down”.
  • The US market will go down by 50% in nominal terms, but at least by 50% in real terms.
  • Interest rates may go up to 100% or 200% in the current secular increase in interest rate cycle that may last 20 or 30 years.
  • Markets are in a bubble and will deflate 50% in real terms.
     

Market Trends and Predictions

 
  • Marc Faber sees some value emerging in so-called value type of investments, as opposed to the growth investments represented by “The Magnificent Seven” in the United States.
  • Investors’ expectations of 15% annual returns, inflation-adjusted, over the next 10 years are completely unrealistic.
  • This whole asset bubble may deflate, and if it does, everything could drop 50%.
  • If Kamala Harris is elected, the market will be deflated very badly, but it may not be deflated in nominal terms, only in real terms, inflation-adjusted.
     

Critique of Institutions and Policies

 
  • I believe that if I look at the characters that are in at the Fed and at other central banks I have no confidence at all in their ability and their willingness to see to it that paper money is a store of value.

 

Ryan McMaken: The Feds’ Runaway Deficits Are Here to Stay (Aug 28, 2024)

Loot & Lobby...

Summary

 

The US government’s spending and debt are spiraling out of control, with a projected deficit of over $2 trillion in 2024 and no plans to cut spending, which could lead to further price inflation.

 

  • The Congressional Budget Office estimates that the total deficit for 2024’s fiscal year will be $1.9 trillion, exceeding last year’s full-year deficit of $1.7 trillion.
  • If the employment data continues to worsen as it has in recent months, that will lead to falling tax revenue, potentially resulting in a full year total deficit of over $2 trillion.
  • Total debt as a percentage of GDP is now higher than 120%, surpassing the levels seen in 1946 at the end of a major global war.
  • Today there are no plans whatsoever to cut spending of any kind.
  • The current runaway spending in welfare and various Wars looks to continue indefinitely.
  • The only trick the feds have up their sleeve is for the central bank to Force down interest rates by buying up more federal debt, but that will trigger more price inflation.
 

Lyn Alden: Fed’s Rate Cuts to Trigger Significant Capital Rotation from U.S. & Into These Markets (Aug 28, 2024)

Kitco News...

Summary

 

Bitcoin is a viable investment option in a world where traditional assets like stocks and bonds are vulnerable to inflation, and its price is likely to increase due to global liquidity and a potential rotation of capital out of US markets.

 

  • The classic 60/40 portfolio, weighted toward US equities and bonds, is very vulnerable to decades of inflation, where both stocks and bonds tend to perform poorly in real terms.
  • Bitcoin can be grouped with inflationary assets like gold and energy, as it’s a type of money with a finite supply, and has advantages such as being globally portable and having a lower supply inflation rate than gold.
  • If you expect ongoing currency debasement, it’s a case to own harder assets like gold and Bitcoin, rather than equities.
  • The biggest correlation to bitcoin price is global liquidity, which can be measured by global broad money supply denominated in dollars.
  • The multiple between Bitcoin’s market capitalization and its realized capitalization, or on-chain cost basis, can be used to identify big bull market tops.
  • The combination of being pretty positive on liquidity for the next 18 months and not really seeing too much excesses in the Bitcoin space currently makes my base case bullish on bitcoin.
  • I’d be surprised if we don’t hit six figures in this cycle, whether it’s 18 months or 24 months.
  • Bitcoin is priced like an option, with its value based on the probability that it will reach its total addressable market, which is “well north” of its current price.
  • Holding Bitcoin can result in a 15% price haircut overnight, but it can also be a buying opportunity if you have spare capital available.
     

Market Trends and Capital Flows

 
  • “The US economy will likely be desensitized to interest rate Cuts in the next business cycle” – Lyn Alden believes that rate cuts will have a limited impact on the US economy and could set off a significant shift of capital out of the US and into other markets.
  • The Fed’s rate cuts will trigger significant capital rotation from the U.S. and into other markets.
  • If the Fed cuts more than expected, we’ll probably see a bigger jump in Gold and potentially Bitcoin than what was priced in.
  • Capital flows actually feed on fundamentals, which then encourage more, creating a self-reinforcing cycle that can potentially reverse the current trend of investment flowing into US markets.
  • A rate cutting cycle is the best Catalyst for a potential rotation out of crowded US markets and into other markets.
     

Economic and Monetary Policy Implications

 
  • I think long term, it’s bearish for the dollar and it will cause the FED to have to buy more of the treasury market than they had before.
  • The US is in a state of fiscal dominance where the government’s large debts and deficits dull the impact of monetary policy, leading to higher average inflation, shallower business cycles and a potential slow motion fiscal spiral.
  • A rate cut cycle is not expected to have a significant impact on the real economy, but will be driven by global liquidity and fiscal dominance.

 

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