Hi Do, Here are Todd’s latest fun picks to take your financial skills to the next level... If you doubted my warning for "epochal change" shared throughout 2021, I'm guessing the past two months are making you a believer now.
I first made the "epochal change" call inside my Expectancy Wealth Planning community April 2020 after the fiscal stimulus was announced. The Fed crossed the Rubicon to a point of no return with that policy change.
The premise is simple. We are at an extreme inflection point in history at almost level - economically, financially, and politically. The only thing missing was a catalyst, which the Fed provided with trillions of funny-munny stimulus.
This inflection point is measured in decades - not months - so this is a slow moving train when watched day-to-day. The effects will be obvious when viewed from the perspective of years and even decades going forward. I'm guessing it's looking more and more obvious to you now as the catalyst causes the dominoes to start falling in order.
What epochal change means is the financial strategies that have worked your entire life won't work the same going forward. The rules of the game are all changing so don't fight the current war using the rules from the last battle as your guide.
The markets and economy are best understood with the analogy of a sand pile. The more sand you pile up, the more unstable it gets. However, there's no visible consequence until that final last grain of sand is added to the top that causes the entire pile to break down. Epochal change is that elusive inflection point where that one grain of sand acts as a catalyst to topple the entire pile.
Just to be clear, my "epochal change" call is not about disaster or Armageddon. I'm very optimistic long-term. It just means we've entered a new epoch where the next 10-20 years will be diametrically different from the past you've known. The past is no longer the future. Using the past as your guide could be dangerous.
The catalyst was trillions of dollars of fiscal stimulus added to the already geometrically growing, out of control, government debt. The mathematics are unrecoverable making the inflection point a question of when, not if. Once the inflection point was reached, then underlying events compound the problem negatively.
The current inflation is the lagged effect of the catalyst arriving right on schedule 1-2 years later, and it means the Fed is now stuck between inflation and the need for additional stimulus. They can't ease with impunity to cushion every downturn (The Fed put and buy the dip strategy) like they did for the past 40 years because the backdrop of required deflation is gone. Bam! Epochal change. New game.
But wait, there's more, because this is a multi-decade event, not just a bear market. The highest stock market valuations in all of recorded history and the lowest interest rates in all of recorded history both precede periods of instability. That fact alone was sufficient to topple this multi-decade pile of sand at other inflection points across recorded history.
But that's not all. That unstable pile of sand stands on a long list of fundamentals that have all reached historic inflection points - three highlights include the loss of U.S. dominance/control opening the door to international instability (Ukraine and Taiwan), excessive/record debt at every level (government, corporate, private) resulting in excessive leverage causing instability that will result in insolvency problems in the future, environmental instability causing record economic damage that grows each year along with inflationary effects, and that's just the warm up (pun intended).
There's much, much more...
Again, I'm an optimist. Don't take this wrong. The groundwork is already being laid for the next life-changing round of prosperity. The seeds of the next prosperity are always sown in the decline of the prior epoch. The digitization of all assets, decentralization, renewable energy, and biotech are just a few of the forces that will launch the next great boom. This party isn't over, but it's definitely time for an extended period of sobriety measured in terms of a decade or two.
Many who partied a bit too hard will feel a hangover. But those who heeded my warnings of this change throughout 2021 should be prepared.
For example, my students using the investment risk management solutions I shared here are generally enjoying profits instead of losses this year as their portfolios adjust automatically to this epochal change. It's not too late for you to join if you think it might help.
But enough of my ranting for today's edition. I'll revisit epochal change and how to manage for it in future updates...
For now, I've got some fun resources below that all convey the same message - epochal change!
Enjoy! Mike has done an excellent job of explaining the instability to financial markets caused by the passive investment bubble (along with the important investment implications). This video is probably his best structured, clearest presentation of the data and issues. The core message - an unstabilizing grain of sand toward epochal change. We've entered an era where supply constraints are the driving force of inflation, rather than excess demand. That increases macro volatility at the same time it decreases policy effectiveness. Hmmm, sounds like epochal change (BTW, you may have to shorten the link after "PDF" to make it work, depending on browser) This may be a bit wonky if you're not a systems trading geek, but the message is simple - epochal change. They're just measuring and quantifying this change in a unique way. If you want a practical, done-for-you solution that simplifies how to do this for your own portfolio then try this.
Onward and upward!
Todd Tresidder
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