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Interesting questions Bevan.

An example of a puzzling phenomenon is Japan flat lining for 20 years. I know that their bubble burst in the early 90's, but wow- 20 years without growth in the stock market WITH a very diligent and productive workforce. It boggles my mind.

..i guess the bottom line might be as Buffet says... when everyone is excited be very cautious and when everyone is scared be bold

Japan has been suffering from a deflationary spiral. Simplistically inflation is too much money chasing too few goods. Deflation is too many goods looking to be spent with too little money around to buy them. The money obviously has to be freely floating and be spent in the population, not locked up in investments etc. Japan is a notorious nation of savers who all withdrew their money from the system, whilst supply of goods remained strong. Tough to inflate the economy that way...

The wider world going forward is really interesting now... We are printing more money than ever before and people are expecting massive inflation to kick in. But, unless this money actually finds its way into the population that's not going to happen. Depending on how this helicopter cash is distributed now, will impact markets quite differently.

Assuming they follow the 2008 model of rescuing the banks then the way they did it was to lower rates and issue bonds, notes etc. via the banks. The banks used all of this QE to invest and distribute into the market and all that cash ultimately found its way to the stock market. So we've had the largest bull run ever over the last 10 years, completely unwarranted according to value investors, and giving most stock market investors a dose of sleepy confidence. We haven't seen any indication of inflation because all that QE hasn't flowed into the real economy.

This time I suspect is going to be very different. It's not the banks that need saving now, it's the lower to middle classes. It's the real economy. The money printers going brrr now should result in at least some of that money trickling down to the lower levels. Of course the monetary system is still completely broken, because money should be created when workers create products and services, and not arbitrarily printed when the Fed panics, or when a computer solves a math problem, or when some rich IT geek "stakes" their digital wallet.

Whilst much of the helicopter money will still be sucked up now by the banks, wealthy investors, corrupt politicians and sheer bureaucracy, there should still be enough left when it reaches the real economy. This is going to result in the mother of all inflationary bubbles, especially in the US.

It helps to think of the global monetary system as wanting to always try and balance itself. However, the balancing mechanism is a lagging effect. So, all of the productivity and wealth creation over the last 100 years has been building up slowly amongst the wealthy, escalating the growing divide between rich and poor i.e. the poor produce the wealth and investors keep the wealth. So that's been the primary flow of productivity based wealth creation.  There have been interesting secondary flows e.g. in 2008 the middle-classes started accumulating significant wealth in property, a trend fed by the banking sector, allowing house owners to use their properties as ATM's.

That subsequent collapse in housing wealth was quickly re-inflated by the Fed with most of the QE going to the 1%. The gap between the very rich and very poor widened exponentially. That bulk of cash was now the target for the balancing mechanism, with everyone sensing a stock-market collapse being imminent. That has happened and many pension funds and investors have been hurt. But the Fed and US govt. are re-inflating again.

In the meantime where has all the clever, safe money run to? To the USD of course, the one place it can't get hurt as the US can print money with abandon as the whole world's goods are its playground, not just its own country's goods. We've also seen a decent dead cat bounce in the market over the last few weeks but that is a minor blip. The great balancer is still coming... I suspect it's coming in the form of synchronised, massive global inflation over the next few years. Unfortunately the real economy is going to get pretty rough. Stagnant growth and high inflation = stagflation. A fate far worse than Japanese deflation. The USD should still perform its safe haven status, until such time as the world finally loses faith in the US' ability to repay its debts. The US has kicked the bankruptcy can a long way down the road now, but inflation is going to bring it forward quite quickly now.

Inflation is the one thing that will see the wealth of the 1% eroded. But it will also mean that the poor cannot afford to eat. The entire global system is fundamentally broken and I cannot see how it can be (peacefully) fixed. I expect generally self-sufficient countries such as South Africa and China will fare much better than the generally importing countries of Europe and America. Yes, the ZAR may get to 100 to the USD before the implosion but that will be our pressure release valve. Our gold miners and food exporters will make a fortune.  One thing is for sure. Change is coming.

(Apologies for the long and opinionated piece but I hope it gives some food for thought...)

Hi Patrick,

I'd like to get your opinion on this.... Martin Luther King once said that, "Communism forgets that life is individual. Capitalism forgets that life is social, and the kingdom of brotherhood is found... in a higher synthesis that combines the truths of both."

Unbridled capitalism has enabled market returns on average over the last several decades of around 10-15%. However, the world is realising that this is not only inequitable but also unsustainable. We are seeing the emergence of active investors and ESG and impact investors who are advocating for a fairer world, perhaps leading towards the synthesis mentioned in the quote above. Investors now realise that correcting wage and social inequality, helping protect the environment etc. all involve higher costs that were never previously considered by the rampant, greed driven capitalism.

The world is also struggling with the limits to growth, with negative rates abounding, even as central banks try to stimulate inflation and growth by conjuring up new cash. The problem is that there is not enough real-world growth to "absorb" this new cash and it has found its way into markets, dangerously overheating them, at least from a value-investors perspective.

Thus, I believe that low stock market returns are here to stay for the foreseeable future, of around 3-7% per year if we're lucky. There is also the ever-present risk of a serious market correction if prices trend too high above value. ESG and impact investors seem happy with this sort of return, as the world starts to consider measuring returns in more than just monetary terms.

The question is, what does this type of return do to the FIRE movement? What is the minimum annual return required to keep withdrawing (4%) of your capital and not run out of money?

In a way this whole trend change is making intuitive sense to me.... It's only possible to be a passive investor, adding no productive value to the world (e.g. indulging in travel), when we do not properly value the real factors (i.e. the workers and environment) that help that investment to make outsized returns. The days of rocking up with capital, facilitating an investment in a factory, paying slave wages, not accounting for environmental resources properly (cost of water or cleaning up pollution), and then taking the bulk of profits out, are nearing an end....

On 17 Mar 2010, the now-defunct BitcoinMarket.com exchange is the first one that starts operating. On 22 May 2010, Laszlo Hanyecz made the first real-world transaction by buying two pizzas in Jacksonville, Florida for 10,000 BTC. In five days, the price grew 1000%, rising from $0.008 to $0.08 for 1 bitcoin

Back then it was faster, cheap and useable. Try buying a pizza today with a few Satoshis. The fees would kill the transaction, and it would take a few hours to go through to the pizza man. I know people that use it to transact (no, not all my friends are online drug and arms dealers) but it's more of a novelty value now. Many Zimbabweans also still use it as it can sometimes be cheaper than the taxi fees to transport hard currency across the border.
 

I don't see gold popping yet but it's coming... The dream scenario for SA gold stockholders is a gold spike, together with another economic collapse / emerging market risk-off sentiment i.e. weaker Rand. I reckon inside of the next 1-3 years.... Interestingly, I reckon SA will recover quicker and faster than most developed nations, who will go into a Japanese style deflation scenario for a long time...

In case no-one has noticed, this dream scenario is busy unfolding for SA gold.... Stock markets look likely to head even further south from here on and whilst they will bounce back, 2019 looks like being another negative or flat year for equity markets. Interestingly, it's almost impossible to buy Kruger Rands at the moment. Apparently, as soon as the Mint opens every day, the available quota for the day is snapped up within minutes....

Whilst I don't think we will see a 1930's depression unfold, at least not yet because the US Dollar still seems to be currency to flee to in a crisis. Of course this is totally nuts as the US is indebted more than any other nation in the history of this planet. This penny has dropped to most of the ultra high net worths already and finally the large funds are starting to realise it. However, everyone is like the proverbial deer caught in the headlights. There is nowhere to turn to preserve value, never mind make a return. Gold, whether you love it or hate it, is becoming the only investable market. In localised markets property, diesel and bread (in fact most food and water) will hold their value too.

Problem as always is the inverse correlation between gold and ZAR. Central banks are indeed buying gold en-mass now, as they spurn US Treasuries. The bond markets are signalling their fear of US debt levels and gold is benefitting from these concerns, as well as general US - Iran tensions, ongoing trade wars etc. Stock markets are very, very top heavy as companies have used all that lovely QE that has found its way to them, to buy back their own stocks. This has kept stock markets absurdly high even as the aging generation (who generally outnumber the young in developed economies) pulls their money from stocks into safer assets, like gold.

I don't see gold popping yet but it's coming... The dream scenario for SA gold stockholders is a gold spike, together with another economic collapse / emerging market risk-off sentiment i.e. weaker Rand. I reckon inside of the next 1-3 years.... Interestingly, I reckon SA will recover quicker and faster than most developed nations, who will go into a Japanese style deflation scenario for a long time...

...until we revert to concurrent weakening again (to ride big swells), probably later in week....

We are in strong concurrent weakening on the Rand, now targeting 16 to USD by end June. However, for now we are quite overbought (i.e. USD) and Rand pushing outside the elastic bands (Bollingers), thus expect a little contraction and sideways, choppy price action. Especially as momentum (the wind) starts moving against signal and trend (the current). This will form the typical bull flag pattern, whilst momentum catches its breath. Following the bull flag, I expect further weakening to the expected 16 level.

I don't do insurance. I prefer to do life. Hell, I don't even do medical aid. Instead, I eat healthy, organic food from the garden and our own animals. I cut down trees and carry logs and build stone cottages, which is way better than gym and keeps me in tip-top condition. I reckon I've pushed back any heart-attack etc. by many years now. Our place makes money from accommodation, selling food and other products, courses and compost making etc. I may have most of my eggs in one basket but I really like the basket and wouldn't want it any other way.

Insurance is pure grudge. If you're the sole breadwinner and your family has nothing else to fall back on then yes, you need it. Find the balance between being responsible and the least cost options, and invest whatever savings you can make instead.

ETH and BTC both clearly very overbought and over-extended now. But weekly and daily momentum are still positive so no reason to sell. Just bring stop losses in quite close. This week could see some fast, gappy corrections so perhaps set guaranteed stops around 5% lower. If stopped out you probably want to look for an opportunity to re-enter on the long side, but we could see up to a 20% correction, so watch daily and 30-min momentum for timing.