Here are Todd’s latest fun picks to take your financial skills to the next level...

The keyword this month is "liquidity."

Liquidity matters to financial markets... a lot!

In fact, one of the most accurate ways to forecast market gyrations measured over weeks and months is to track changes in global liquidity. As global liquidity rises, asset prices rise. As global liquidity falls, asset prices decline.

The correlation between global liquidity and asset prices has been remarkable for years, and the top driver of global liquidity is -- drum roll please -- global central banks.

But something changed this past year (epochal change) that took a lot of global macro experts by surprise.

Rising interest rates increased global liquidity, when the opposite is supposed to occur. It was a completely perverse turn of events, and it's caused by one issue.

I've stated from the beginning (4th quarter of 2021) that excessive government debt would play a critical role in this new investment epoch.

Not just U.S. Government debt, but governments around the world all suffering excessive debt levels relative to GDP.

We now have data since late 2022 showing the early stages of the problem, with fascinating implications for how this major regime change will play out.

In a nutshell, the government is raising interest rates to squeeze liquidity in the private sector with the intent of reducing marginal business activity. This theoretically slows down the economy, which should take the pressure off inflation.

At least, that's they way it worked in the past...

However, the 2022 historic interest rate increases had a muted effect - far less than expected. Media and pundits are spinning the story that the U.S. economy is resilient. But something else is going on under the hood that isn't being reported.

This new epoch is characterized by such massive government debts that rising interest rates are now simultaneously suppressing the private sector while stimulating the exact opposite affect through increasing liquidity provided through the public sector.

It's an Alice in Wonderland twist on reality that gets curiouser and curiouser as you descend down the rabbit hole.

The interest government is paying on its massive debt is growing so rapidly that the overall effect of rising interest rates is now perversely stimulative to asset prices.

The government is simultaneously suppressing the private sector to control inflation while it is stimulating asset prices by pumping liquidity into the economy through increasing debt payments.

It's a new dynamic, which is part of the epochal change.

For right now, the markets are dancing while the music plays, but there's a fundamental problem lurking under this calm surface:

• It's mathematically impossible for the government to grow debt long term at the current rate, so it must lower interest rates.
• However, the Fed must credibly fight inflation to maintain a stable currency, stable economy, and stable society.

The conventional Fed playbook is to fight inflation using monetary tools (increasing interest rates), but excessive debt means they need to work from a fiscal policy playbook (austerity) if they're going to be effective.

In short, they're stuck between a rock and a hard place. The short term results are working out fine. Asset prices are temporarily rising with all the liquidity from government debt interest payments flowing back into the economy, but it's not sustainable in the long term because of the geometric growth of the debt.

They need to fight inflation, but they can't slaughter themselves in the process with out of control debt growth. Something has to give.

Again, the investment epoch changed at the end of 2021. What worked for the prior five decades isn't what will work for the next two decades.

Lyn Alden (in today's resources below) does an excellent job of detailing exactly how this "Catch-22" for the Fed is developing in real-time so anyone can understand it.

Our second resource is just for fun. It's yours truly interviewed about epochal change, what it is, how it works, and the best way to manage your portfolio in the face of uncertainty. This interview will give you a solid understanding of what I've been ranting about in this newsletter for two years now.

Finally, my recommended resource for managing your investment portfolio through epochal change is here. These tools have been working exactly as expected since first recommended two years ago. They deftly managed risk during the 2022 decline and correctly added risk during the 2023 rise. It hasn't been perfect, but I don't know of a more proven, reliable method for portfolio management going forward with all the uncertainty inherent in epochal change.

I hope all of this month's resources help you invest smarter!
 

Fiscal Dominance - Lyn Alden Research

Lyn's recent research is critical to understand the role that ballooning Fed debt will play in this new economic regime. As the Federal Reserve raises rates, federal interest expense increases, and the federal deficit widens ironically at a time when deficits were the primary cause of inflation in the first place. It risks being akin to trying to put out a kitchen grease fire with water, which doesn’t work as expected. The problem is fiscal, not monetary. Unfortunately, the Fed doesn't have another solution.

Epochal Change in The Financial Markets - Richer Soul podcast

The host of the Richer Soul Podcast, Rocky Lalvani, is one of the founding members in my Expectancy Wealth Planning community. In this episode, he interviews me about epochal change, what it is, how it works, and how to better manage your portfolio for these changing times. My recommended resource for managing your portfolio is here, and you can learn more about my Expectancy Wealth Planning community here. I hope you get great value from this entertaining and educational interview.

Take Action Now So You Can Grow Your Wealth During Epochal Change:

1. This investment software solution includes two of Todd's top investment systems. You'll learn the smart, proven way to manage portfolio risk during epochal change. Once you understand it, you'll wonder why you tolerated the unmanaged risk in your  old "buy and hold" investment strategy.

2. My Expectancy Wealth Planning group coaching program shows you how to maximize the expected growth of your wealth in every market condition regardless of epochal change. My students were prospering during the good times, and they're still prospering during this adversity. Join this smart community of active wealth builders to secure your financial future.