In case you haven’t noticed, there’s a LOT going on in the world as we sail into a brand new investing decade …
In addition to wars and rumors of wars, a growing number of notable people are publicly expressing concerns …
… not just about the economy and financial markets, but the system itself.
Perhaps the most notable is Ray Dalio of Bridgewater Associates, the largest hedge fund in the world.
In a recent article, Dalio warns …
“The World has Gone Mad and the System is Broken”
Dalio’s essential thesis is the system of free money has created a series of negative trends that will eventually converge into a fundamental and epic re-set.
“This set of circumstances is unsustainable and certainly can no longer be pushed as it has been pushed since 2008. That is why I believe that the world is approaching a big paradigm shift.”
Of course, just because he’s successful doesn’t mean he’s right. But Dalio is certainly well-qualified to have an opinion worth paying attention to.
But as we’ve learned from studying smart people, understanding what they’re saying takes some time and effort.
We think it’s worth it. Because any “big paradigm shift” involving the financial system affects EVERYONE … including lowly Main Street real estate investors.
If you’re new to this discussion, consider making a modest investment of time and money to watch our Future of Money and Wealth presentation, “The Dollar Under Attack”. It’s helped a lot of real estate investors see a bigger picture.
It’s important to understand the difference between the “economy” (activity) and the “system” (the structure supporting the activity … including currency, banks, credit, and bond markets).
Remember, the economy was humming along leading into 2008 … booming, in fact. But the system was faulty under the hood, and ultimately broke down.
Just like a car, the economy can go faster or slower … but only while it’s mechanically sound.
If the vehicle’s systems fail, then the car is incapable of speed … and may not even run at all.
Then, when the car breaks down, your skill as a driver is meaningless, except perhaps for avoiding catastrophe when it happens.
In all cases, you end up on the side of the road going nowhere.
The same is true with the financial system and your skill as an investor. If the financial system fails, it can sideline a lot of people … including you.
Of course, the financial system, like a car, has gauges … indicators of performance, health, or impending failure.
But not all gauges are easily seen. And reading them requires education.
That’s why we hang out with smart people like Chris Martenson, Peter Schiff, Brien Lundin. G. Edward Griffin, and Robert Kiyosaki.
Even better, each of these guys are connected to lots of other smart people like Danielle DiMartino Booth, Mike Maloney, Grant Williams … and many more.
You may not yet be familiar with some of these names. Except for Kiyosaki, none of them are serious real estate investors … and that’s GOOD.
As we learned (the hard way) in 2008, when you live in an echo chamber of people who all hope … even need … the economy and financial system to be functional …
… there’s a tendency to ignore or discount even the most obvious problems.
As Upton Sinclair said …
“It is difficult to get a man to understand something when his salary depends on his not understanding it.”
There were warning signs leading up to 2008. Peter Schiff and Robert Kiyosaki both saw them and publicly warned people. Very few listened.
Unsurprisingly, both Schiff and Kiyosaki stopped getting invited on to mainstream financial shows. Wall Street’s not likely to advertise on programs outing a failing system.
And people making millions in the mortgage business weren’t interested in hearing how the mortgage markets were about to implode. Ditto for real estate, stocks, and bonds.
However, smart investors are wise to look beyond their own normalcy bias and the filtered news which is produced by people whose livelihood depends on a rosy narrative.
Risks are ever-present … and the worst are those you don’t see coming.
But before you go full fetal freak out, we’re NOT saying the end of the world is nigh. After all …
“A bend in the road isn’t the end of the road … unless you fail to make the turn.”
But if Dalio and others are correct, then there’s more than a reasonable probability of substantial changes to the financial environment we’re all operating in … then it’s worth preparing for.
After all, it’s better to be prepared and not have a crisis, then have a crisis and not be prepared.
Remember … ignoring risk isn’t optimism, it’s foolishness.
Legendary real estate investor Sam Zell says one of his greatest assets is the ability to see risk and move forward. You can’t navigate a hazard you don’t see.
So what are some things our smart friends are watching heading into 2020?
Gold, oil, debt, the Fed’s balance sheet, bonds, and interest rates.
These are like the dashboard gauges for the health of the financial system.
Right now, at least three are blinking red … gold, debt and the Fed’s balance sheet.
It’s also important to note that those three are also leading indicators for bonds and interest rates.
That’s because if the world loses faith in the dollar, they won’t buy U.S. debt, which is growing at a staggering rate.
In spite of all their bickering, Congress and the White House manage to agree to big time spending.
And if the world loses its appetite for U.S. debt, then either interest rates rise (something which directly affects nearly all real estate investors) …
… or the Fed needs to buy up the new debt with freshly printed money. This is called “monetizing the debt” … and would show up on the Fed’s balance sheet.
Some say this “monetization” could lead to hyper-inflation. Others think it means the U.S. could go into decades-long stagnation like Japan.
The difference is Japan doesn’t issue the world’s reserve currency and enjoys a friendly relationship with the country that does (the United States).
So we’d say the United States situation isn’t exactly the same as Japan. But what do we know? We’re just two dudes with microphones.
Maybe there are clues in the news …
The world’s super-rich are hoarding physical gold
Yahoo Finance, 12/10/19
Hmmmm … it seems the “fear” trade … those looking to park wealth someplace “safe” are choosing gold … in addition to, or instead of U.S. Treasuries.
If instead of Treasuries, you’d expect interest rates to rise as bond prices fall due to less bidding.
But while there’s currently only a little upward pressure on rates, it’s not much … so someone must be buying them. Chris Martenson says it’s the Fed.
In other words, the Fed might be starting to monetize the debt.
So it’s notable the “super-rich” are following the lead of the world’s central banks in acquiring gold. No surprise, as of this writing, that gold is trading at a 7-year high.
In other words, if Chris Martenson is right, everyone (except the Fed) would rather own gold than U.S. debt denominated in U.S. dollars.
But we know Uncle Sam can’t default. The US can print an unlimited number of dollars. So no one is avoiding Treasuries because they don’t think they’ll get paid back.
The concern must be the value of what they’ll get paid back with … the dollar.
Think about your paradigm of wealth. Do you denominate wealth in U.S. dollars? Are you ready for a “big paradigm shift”?
The new decade should be an exciting ride … scary and dangerous for those not strapped in with the right education, information, portfolio structure, and tribe.
Education, preparation, and tribe have never been more important. If you’re not seriously investing in those things, perhaps now is the time to start.
Meanwhile, we’re bullish on Main Street.
We think real people who do real work and own real assets will fare much better than those counting on paper promises from Wall Street, bankers, politicians, and pensions.
If you’re a fan of real estate and other real assets, you’re already on the right track. Now it’s time to take it to the next level.