The S&P500 returned 7.5% for the first quarter of 2023 despite the loss of a few banks including the giant Swiss bank Credit Suisse. In fact, the stock market followed a familiar script where the markets pull back in response to some negative stimuli (in this case it was bank failure) which is then followed by a sharp rally in the stocks that speculators are betting against.
I’ve written about the tendency for crises to spark stock market rallies too many times already so I’ll spare you this time. Besides, I’ll give credit where credit is due and say the Federal Reserve did an admirable job in crafting a program to prevent bank insolvency when large depositors withdraw their money in a concerted action such as with Silicon Valley Bancorp.
But that’s where my approval of the Federal Reserve stops. Elsewhere I believe they’ve done a terrible job in reading the causes of inflation and an even worse job of understanding the state of the US economy. Perhaps worst of all, I’m not sure they truly understand the Eurodollar market, or dollars that are held outside the US banking system, because if they did, they wouldn’t be raising interest rates.
The global economy is suffering from a scarcity of US dollars in the global banking system which is forcing global central banks to look for alternatives to trading with the US dollar. This is happening while the US economy is grappling with excess inflation brought on by too many dollars at home. I believe this paradox is the most critical uncertainty facing global investors today and will ultimately result in a sharp decline in the economies of China and the emerging markets with the attendant outcomes in our domestic markets.
Does the chart provided below look like the chart of an asset that central banks no longer want to own? Does it look like an asset that is increasing in value or decreasing in value over the long term? When I say value, I mean relative value as in relative to other global currencies. Compared to currencies such as the European euro and Japanese yen, the dollar has increased in value.
So why is everyone writing about the dollar losing its grip on being the currency for global trade? The answer is a bit surprising in light of the strong inflation we are enduring in this country but the problem with the US dollar in international markets is that there are not enough dollars outside the US for global trade.
Dollar is Unique
There has never been a currency like the US dollar in the history of mankind. Some will point to periods where the Dutch guilder and the British pound sterling were reserve currencies. In the case of Britain, the pound was the global currency reserve from the early part of the 19th century until the end of World War 2 and was replaced by the US dollar.
The difference is that the guilder and the pound were both convertible into precious metals, mostly silver and gold, whereas the US dollar is no longer convertible into specie, which is a fancy word for gold or silver. In 1971, the US closed the gold window by declining requests by world central banks to redeem their surplus US dollars for gold. This was a monumental decision by the US government which allowed for the extraordinary expansion of global money supply that has underpinned global economic expansion from 1971 to the present.
Non-convertibility is not the only reason why the US dollar is unique among reserve currencies. Perhaps more importantly, the US dollar experiences supply and demand dynamics as if it’s two different currencies. This is a controversial topic but hopefully my explanation makes sense.
When the Federal Reserve adds money to the US banking system, it does so by purchasing US Treasury securities or mortgage-backed securities from its primary dealer banks. The cash that is deposited in the banks accounts are known as “reserves”. The more reserves a bank has on hand, the more that bank can lend in the United States. Therein lays the critical distinction. When the Fed acts, its actions impact the US banking system and not the global banking system.
Eurodollars are dollars that are held outside the US banking system. US dollars become Eurodollars when the US pays for imported goods and those dollars remain in the global banking system. In addition, US dollars become Eurodollars when a US bank wires dollars to a foreign bank, mostly for investment purposes. Once outside the US, it becomes available for trade between countries other than the US.
If Brazil wants to purchase oil from Kuwait, Brazil needs dollars to complete the transaction because Kuwait does NOT want Brazilian real. Likewise, if Argentina wants to purchase an industrial machine from Japan, they need to pay with dollars because the Japanese don’t want to hold Argentine pesos.
The amount of Eurodollars outside the US is believed to be roughly the same amount that exists in the US but nobody knows for sure. What we do know is that the Federal Reserve lacks the authority to regulate Eurodollars because they are held outside the US. According to the Federal Reserve Bank of Richmond, most monetary authorities are hesitant to regulate the Eurodollar in their countries out of fear of driving the business out of country. This being the case, the Eurodollar market is largely unregulated.
It’s not a stretch to say that Eurodollars built the global economy but now there is a scarcity of Eurodollars left in the global banking system. We know this because central bankers from around the world are complaining that they lack the access to dollars needed to fund trade. This is the real reason why there is talk of trade in currencies other than the dollar. So what happened to all of those Eurodollars from past trade? China destroyed them.
China Wrecks the System
Until the middle of the last decade, China was synonymous with growth. We can now see that we’ve been correct about China over the past 25 years in that China grew because they were willing to disregard all of the laws of economics and finance that were learned over thousands of years of trial and error.
Because China lacks most necessary inputs into the production process ranging from commodity inputs to high-end machines and intellectual property, they have had to import much of what was needed to grow. This means they needed to pay Saudi Arabia for oil, Brazil for iron ore, Germany for Computer Numerical Control Tools (CNC), and the US for software. Sellers weren’t willing to accept yuan in trade, so China had to borrow dollars in the Eurodollar markets where foreign banks were happy to accommodate.
We can see this from the chart on the left which shows China’s International borrowing from 2012 to 2019. Notice how borrowings were rising sharply until we get to the second chart which shows 2019 to the present. International bankers seem less optimistic about China’s prospects.
Not only did China use dollars to buy the inputs to grow itself, a decade ago they started on what’s called the “Belt and Road Initiative” or BRI. These are infrastructure investments through the Middle East, Africa, Southeast Asia, Central Asia, and terminating in Europe that were designed to ensure China had better access to energy and other inputs as well as to effectively “buy” cooperation with China.
Most estimates that I’ve seen suggest a total investment of $1 trillion to $1.3 trillion, largely in US dollars. Of these investments, Russia was the biggest borrower followed by Egypt, Pakistan, Turkey, Sri Lanka, and others. It’s an ugly picture and roughly half of these loans are now considered “distress” even as the projects they started lie uncompleted. The average credit rating for BRI debt is B3/B or just above being considered “junk”.
If China was an investment manager, they would have been fired long ago because they are terrible at investing capital. But it doesn’t stop there. Chinese corporations have US dollar debt somewhere in the $7 trillion neighborhood, much of which was borrowed by real estate developers – think China Evergrande!
Here’s a chart of China’s Shanghai Stock Exchange relative to the S&P500 over the past decade. The chart shows returns of Chinese companies compared to US companies. It’s loosely a measure of how much value Chinese firms have created relative to US firms.
Another way to view it is if you had chosen to invest the same amount of capital in Chinese companies and US companies in 2007, your investments in Chinese stocks would only equal 20% of your investments in US stocks today. It’s not scientific but it gives us a decent idea about the relative differences in the way both countries create value for investors.
My theory is that China drained Eurodollars out of the global banking system either through direct loans or vehicles such as mutual funds and destroyed them by making horrible investments. They invested those dollars in redundant infrastructure, industry, and real estate in China while concurrently destroying money on the Belt and Road Initiative.
Money is destroyed when loans can’t be paid back. Banks have to write down the value of those loans which leads to a loss for banks which then means they can’t create as many new loans in the future. Think of losses as a black hole for banks. The whole banking system model is predicated on the hope that good loans will generate enough profit to overcome the negative effect of bad loans.
Financial crises occur when investors lose faith in the banking system and attempt to pull their money out of questionable financial companies such as Silicon Valley Bank.
Dollar in Trade
Everywhere I look, I see media pieces talking about how the dollar will no longer be used exclusively in trade, implying weakness in the US banking system. Many of the alternatives involve countries settling trade in Chinese yuan. I find it amusing because I’ve been working on this question for over a decade. The truth is that countries like Iraq and Saudi Arabia are willing to accept yuan because the US no longer needs to import their oil.
France has completed a transaction for LNG, or liquefied natural gas, in yuan as a first attempt to wrest control of the world financial system away from the US dollar. Not coincidentally, the IMF, or International Monetary Fund, largely controlled by France, has introduced the Universal Monetary Unit, which they hope will one day replace the dollar. As a point of reference, the IMF has been trying to replace the US dollar in trade as far back as 1946! And it was Charles de Gaulle who prompted the US to close the gold window by consistently attempting to redeem dollars for gold throughout the 1960’s. This is nothing new for France.
Brazil and Argentina are looking to create a joint currency between them. Last week Luis Ignacio Lula da Silva, the President of Brazil, was in China and openly asked why the two countries continue to trade in US dollars? Here’s the answer:
Since 1995, the Brazilian real has declined by 80% versus the US dollar. If global central banks held Brazilian real instead of dollars, they would only be able to buy 20% of the international goods as compared to holding dollars in their reserve accounts.
It would have been worse if global central banks held Argentine pesos because the peso has declined from 1 per dollar in 1999 to 215 per dollar today meaning global central banks would be able to buy a half of 1% of what the dollar can purchase over 23 years.
The BRICS countries of Brazil – Russia – India – China – South Africa are considering joining together to create a new currency trading system. Based on their combined histories of currency devaluation, it would be akin to a group of drug addicts opening a pharmacy together.
China is Out of Options
The positive returns in the stock market imply that the global economy will once again start to grow later this year thanks to China exiting COVID lockdown. It’s a shallow and obtuse perspective because it ignores the now ample evidence of China’s coming decline. Everyone can know the truth with just a little digging.
A friend who also studies global economics once told me that “China is just different. The rules of economics and finance seemingly don’t apply to China.” He was wrong, of course, because the rules still apply but sometimes the day of reckoning can be postponed for a while.
China is no longer the world’s low cost producer of manufactured goods. This is an old chart from the US Bureau of Labor Statistics but it gives us a starting point.
Since 2009, the average hourly compensation for Chinese workers has accelerated and is now somewhere near 2X Mexican labor rates despite Mexican workers being better educated and more productive. This will become important for investing over the next decade.
The Chinese Communist Party (CCP) hoped that rising wages would lead to a western-style consumer economy but it never happened. Credit cards became popular with young people during the 2010’s but this never resulted in strong consumer spending. Instead, the CCP resorted to creating a housing bubble much greater than anything ever experienced.
Local governments were able to extract upwards of 74% of a new homes cost in the form of fees and taxes. In fact, local governments actually set the price for building new apartments in order to maximize their piece of the revenue. These fees and taxes became an important source of provincial revenue averaging around 30% of total revenue each year. And now it’s gone.
The result is that the average price to income for the top 100 cities in China equals 12 as compared to 6.83 for Japan, 8.9 for South Korea, and 5.07 for the US, all far wealthier than China. Along came COVID where people were unable to work or even leave their apartments for long stretches at a time, forcing many to turn to savings and credit cards. It’s now believed that 600 million people have no liquid savings as much of their former wealth is frozen in housing or insolvent wealth management funds.
In the wealthiest city, Shanghai, estimates by college administrators suggest that only 30% of recent college graduates have found jobs in Shanghai. It’s expected to be much worse in secondary cities. The CCP admits to a 20% unemployment rate in workers in the 16 to 35 age group but private estimates are north of 30%. There is a new fad among young Chinese called “lying down” where they work just the minimum to get by since they’ve lost faith in the future.
Even Beijing is experiencing difficulty where the international real estate firm, CBRE, estimates that office leasing in Grade A properties fell 21% from the fourth quarter of 2022 to the first quarter of 2023. Global firms are moving away when their leases expire.
Manufacturing jobs are no better as China is experiencing a mass exodus of blue collar jobs to neighboring countries. Vietnam, Malaysia, and India are major beneficiaries. Companies such as Samsung, Foxconn, and Toshiba to name a few have cut millions of jobs that are not coming back. Unemployment is picking up even as their labor pool ages and contracts.
So what’s left for the CCP to do?
The only option left is to create a ton of infrastructure projects like what followed the Great Financial Crisis. Think of empty cities, malls, and amusement parks in addition to roads to nowhere. These projects are financed at the local level with bonds for the specific projects.
Local Government Financing Vehicles or LGFV’s are so overwhelmed with debt that banks will no longer lend to them. The IMF has estimated that LGFV debt has doubled over the past five years and now stands at over $9 trillion US dollars, or roughly 63 trillion yuan.
LGFV’s don’t show up on municipal financial statements because they are supposed to be tied to specific projects much like US municipal revenue bonds. These are funds that were supposed to go towards building infrastructure but in recent years, they’ve been used to keep provincial governments from declaring bankruptcy. Since we know that banks will no longer invest in LGFV’s, the only option left for China is to print money at the People’s Bank of China and distribute to the provinces. The result will be inflation and social instability. This is why I don’t believe China will be able to grow out of this problem and why I believe that China’s decline will clobber the emerging market economies of the world.
In last quarter’s newsletter, I discussed the demographic crisis that is presently hitting China. You may recall that thanks to the disastrous “one child policy” from the 1980’s, China’s working age population is collapsing. We’re also seeing increased evidence that China’s stated 1.4 billion people may be overstated by as much as 30%. As a result, the next decade is going to be very difficult.
Western Powers and China
The US, Europe, and Japan are increasingly looking to disengage from China, particularly as China expresses its desire to be treated with the respect afforded a great power while re-embracing Communism. Instead, the US is moving rapidly to cut China off from high-end semiconductor technology, high-end industrial software, high-end chip capacitors and resistors (needed for advanced technology) and all technologies connected to artificial intelligence or AI.
Most people think of China as a technology powerhouse but it’s a misleading designation. China is good at churning out low-end products or assembling products that include high-end inputs that are manufactured elsewhere. This is the case in products ranging from steel to gas turbines to advanced semiconductors. In fact, the US is proving to be quite capable in limiting access to these technologies and China has little recourse short of war.
Communism doesn’t foster innovation, it stunts it. China has to import 90% of its high-end tools. They produce more than 50% of global steel yet still need to import 100% of the high grade metals it uses. The global supply chain still flows through China but that is changing on a daily basis.
Back to the Currency Markets
In the preceding pages, I merely scratched the surface in regards to the structural problems facing China. In past newsletters, I’ve discussed the destruction of their arable land and water table necessitating increasing grain imports.
The US is the world leader in energy output, agriculture output, intellectual property, and we have the most powerful military by far. Our political system may be a bit dysfunctional these days but it is still light years ahead of China, Russia, Saudi Arabia, Iran, and Turkey.
After reading this, which currency would you prefer to hold in your foreign currency reserve account, the US dollar or Chinese yuan? Exactly…
Now that you’ve read the above, you may be inclined to think that I believe that everything is rosy in the US economy; it’s not the case. We’re headed for a deep recession that will be compounded by the above analysis of the world’s second biggest economy. Up until now, this growing weakness has been obscured by giant government spending bills, ostensibly to fight COVID and inflation, but in reality little more than vote buying by both parties in Congress.
If you want to see the headwaters of our current inflationary river, look no further. The Federal Reserve has been injecting reserves into the banking system for the past 15 years but it took COVID to put that money into our pockets – and then out of our pockets thanks to inflation.
With all of this money flowing out of the US Treasury, the impact of the Federal Reserve’s interest rate tightening campaign has yet to be fully revealed. While some people are paying higher interest rates for financing and getting hurt by inflation, others are still cashing checks such that the net effect has remained slightly positive.
The Inflation Reduction Act of 2023, which was anything but, is still impacting our economy and obscuring economic data. As its impact lessens throughout the year, we’ll increasingly see the stifling impact of higher interest rates on our economy. We’ll also start to feel the impact of global economic weakness as discussed earlier.
You can see from the two charts below that the jump in the consumer price index correlates perfectly with the chart above of government expenditures. It also correlates strongly with the chart to the right which is the price of regular unleaded gasoline in the US. We’ll talk more about further below.
There was a third driver of inflation which was supply chain disruption that affected us in late 2020 but that driver has already reversed. It’s no longer an issue.
While I’m skeptical of the climate change models, it appears to have convinced enough people such that change is being legislated to move the US, at least partially, from carbon-based energy to what is referred to as “renewable energy”. In truth, we have more than enough data to know that renewable energy is impossible given that there are relatively few places on earth where solar and wind energy is actually viable. Don’t believe me? Ask the Germans who are now burning more dirty coal than ever before.
As an aside, nuclear energy is the only solution that can appeal to both believers and non-believers in climate change. Today it’s nuclear fission but tomorrow looks like nuclear fusion will be the most rational choice.
Regardless, the second biggest driver of our present bout of inflation is higher energy prices which are the direct result of the aforementioned climate change policies. Will these policies remain permanent? I’m not sure because I’ve observed over time that people are enthusiastic for change until they get the bill for such change and are forced to adjust their lifestyles.
This outcome is unknown but for now, government spending and climate change policies are impacting decisions being made by the Federal Reserve Board and have directly resulted in the Fed moving away from its 0% interest rate policy in favor of a present rate of 5%. The Fed is trying to stop inflation and interest rate policy is like driving nails into a board with a sledgehammer. The nail will go in even if the board splinters.
I believe the Fed has shown itself to be reckless in the way they raised interest rates over the past year. The inverted yield curve below shows that the bond market agrees with my assessment.
A normal yield curve moves upwards from 3 months to 30 years reflecting the uncertainty that increases with time. An inverted yield curve, by contrast, occurs when short term interest rates are higher than long term interest rates. Among other things, it reflects that the market believes short term interest rates are too high and that it will lead to declining interest rates in the future, ostensibly due to a weaker economy.
This is why my expectation for economic weakness isn’t a novel idea because even the Federal Reserve admits we’re likely going to experience at least a light recession as a result of their policies. An inverted yield curve, particularly a yield curve that has been inverted for almost a year is about as sure a sign of a future recession as exists.
The reason the Fed gives for why they have continued to raise interest rates is that employment is still fairly strong. You can see from the chart below that we’ve even added jobs since the start of COVID.
There are three problems with the Fed’s argument. The first is that employment is well known to be a lagging indicator. The second problem is that the government has actually paid small firms to maintain employment levels. The third problem is a lot of people are working additional jobs to make ends meet.
Using employment as justification to continue raising interest rates tells me that we’re dealing with a collective obtuse perspective at the Fed because any reasonable analysis includes explanations for why a variable is behaving the way it is behaving. Sometimes a picture tells a story better than anything else. Below is a picture of people lining up for a food bank that distributes weekly supplies to families’ in-need. It’s like this all around the country.
It’s impossible to know the exact date that the economy starts to slow rapidly but each day we know that we’re getting closer to the terminal point. There are a few things that tell us we’re nowhere near a bottom.
We still don’t know how the whole climate change discussion will shake out but we do know that President Biden is serious about cutting carbon emissions based on his very aggressive fleet fuel efficiency targets for new vehicles. You may also recall from past newsletters that US consumers are unhappy with the new cars and trucks offered for sale by automakers. Here’s the proof that GeoVest is on the right track.
For the preceding decade before the Biden Administration, auto sales averaged between 17 and 18 million per year. Today, the trend is between 13 and 16 million new cars and trucks per year. Why is that? It’s because Americans don’t like the new car offerings, the high prices of new cars and trucks, and definitely are not universally interested in electric vehicles. I view electric as a niche market and I believe it will remain that way.
The right hand chart shows used vehicles which have remained elevated despite overflowing inventories of new vehicles. I believe it’s going to remain this way until Washington backs away from these draconian changes to fuel mileage and emissions. The good news is that we’re invested in companies that can take advantage of this situation.
The market is in flux because we haven’t agreed as a nation on climate change but if there is one thing that both can agree upon it’s that the inability to sell new vehicles is bad for our nation’s economy. This isn’t 1960 where what was good for GM was good for the country. Nonetheless, it’s going to continue to act as a drag on our economy.
Interest rates have certainly hurt the housing market, at least anecdotally, but people are still looking to move. Retirement and moving to lower cost locales is a trend that continues despite higher rates. Additionally, young people are moving out of cities where possible in order to escape the rising crime in cities such as Chicago.
According to Statista, cell phone records show that cellular activity in North American cities in the Fall of 2022 relative to the Fall of 2019 show a remarkable decline in usage suggesting much smaller populations in those cities. Los Angeles was one of the better cities with cellular activity recovering 65% of 2019 levels while San Francisco was only at 31% of 2019 levels. Not surprisingly, Chicago was at 50%. These numbers support the thesis that housing remains somewhat strong due to people escaping crime-riddled cities.
This is going to be an interesting sector to watch because we should have witnessed a decline in housing activity thanks to higher interest rates and while weaker than a year ago, it’s still relatively strong. It may also bring the aforementioned question about energy policy to a head because cities lend themselves to public transportation where the suburbs require automobiles. Will this change attitudes going forward?
A few banks went under in March, including the Swiss giant Credit Suisse which was merged into Union Bank of Switzerland. A number of people called it a crisis and tried to draw parallels to Lehman Brothers but the situation is far from the Great Financial Crisis (GFC). Credit Suisse has been mismanaged for years in my opinion and its demise is unrelated to the issues with Silicon Valley Bank.
The fallout is that bank lenders are becoming more cautious as represented below.
Bank lending departments are getting more cautious and tightening standards as represented in the chart on the left and lending to commercial and industrial clients has already started to fall. If the two charts above look like a roller-coaster to you, it’s because bank managers typically react to change. They don’t anticipate it. It’s the nature of the industry.
If we are destined for a financial crisis later this year, I expect that it will be sparked by commercial real estate and in particular, office properties. Small banks, REITS, and funds are big owners of commercial real estate with only small banks representing systemic risk. REITS and funds can halt redemptions or “gate” the funds in order to not provoke a disorderly liquidation. It has reduced risk in the system substantially while elevating individual risk for investors.
With interest rates at 5%, the Fed has a lot of room to cut rates in the event of a crisis. Bank stocks have already sold off and while some are statistically cheap, I’d rather invest in high quality banks in the middle of a recession as opposed to the beginning. There may be some midsized regional banks to make money but it strikes me as trying to pick up nickels in front of a steamroller.
AI is apparently the new big deal and we supposedly are in the equivalent of a space race with China over who will dominate this industry. From the work I’ve done already, it appears that we are a long way off from AI becoming an important part of our economy, if ever.
AI takes a significant amount of software coding to do simple things. The Holy Grail today is self-driving cars which is still a long way off. Even further off into the future is anything resembling the HAL 9000 which you may recall from the movie “2001: A Space Odyssey”.
The technology is fascinating but for the time being, it will have as much impact as 3D Printing. And as it pertains to China, US companies, which have designed the high-end chips that make AI possible, are unable to sell those chips to China without approval from the White House.
In addition, the Biden Administration has taken a hard line with our allies, threatening to cut them off from the global banking system if they sell high-end chip making equipment to China. This includes ASML which is the Dutch company that makes the machines that make high-end chips. It also includes the Zeiss Group which is the German company that makes the extraordinarily precise optical lenses that allow for the precise photovoltaic etching process for chip making.
NVidia (NVDA) designs the advanced chips that power AI but thanks to the excitement around the new technology, the benefits have largely been discounted in the stock price. Trading at 159 times earnings and with a market capitalization of $683 billion, it’s already valued as a “sure thing” beneficiary of this embryonic technology.
Nvdia is a terrific company but those are Y2K Internet valuations built on hype. As a long term investor, the stock price would need to decline by 60% or more before it would be attractive.
This is before taking into consideration the likelihood of a semiconductor industry downturn thanks to both global economic weakness and restrictions on sales of high-end chips to China.
Too many people are anticipating a stock market decline for a decline to actually occur without a “bolt from the blue” or “Black Swan.” I wrote the same in January and not enough has changed to indicate a sharp, imminent decline in the averages. Besides, the industries that dominate our client portfolios are catching a bid once again because their fundamentals have remained strong.
It’s also conceivable that we experience an economic downturn starting later this year without the attendant decline in the stock market we would normally expect. The idea sounds ridiculous but much of what I once considered ridiculous has become mainstream in today’s society.
With an open-mind to all possibilities, I think the most likely scenario is that the stock market remains in a trading range with little upside and little downside until a recession becomes obvious. The chart below is about as good a guess as any and while the markets are near the upper band, I think the optimum strategy will be to rotate in stocks that have under-performed the market while rotating out recent winners . Given the likelihood of a downturn, limiting our selections to high quality companies is imperative.
The stock market is at levels first broached in 2021 but within that time we’ve had wide swings up and down with stock leadership changing a dozen times. There are no industries that maintain leadership for very long and corporate profitability is a giant risk factor. It’s why we stuck with companies that enjoy strong fundamentals but those stocks tend to fall out of favor when the stock market hype machine is going. It’s going to require a more balanced approach as we wait for the economic clouds to clear.
The GeoVest Approach
The media does a terrible job of identifying important issues and instead generates a ton of noise making it difficult to hone in on the factors that will impact long term investors. Fortunately, the media is starting to talk about the problems associated with China being an integral part of the global economy but the coverage is still quite shallow.
I write extensively about China because the outcomes from their poor policy decisions will have an enormous impact on client returns. The global nature of today’s economy means that most goods producing companies are dependent on China for either the supply of their products or as important customers for their products, or both. Where the US, Europe, and Japan are relatively stable economies, China is increasingly unstable and prone to a large contraction this year. This problem is so poorly understood by Westerners that it will likely catch many unprepared.
It’s the same situation with the US dollar. Yes, some countries are executing trades for global commodities with currencies other than the dollar but it is NOT because we are debasing the value of the dollar. When news outlets comment on the topic, invariably they find analysts who have mistaken conclusions thanks to some bias against the US. It’s the same thing for crypto currency analysts.
We are at the end of the post-WWII economic cycle. It’s been lengthened by 30 years thanks to the extraordinary efforts of the world’s central banks but now it’s over. The stable expectations that brought us to this point have been replaced with uncertainty. More than anything, I suspect this is why people have been acting in ever more bewildering ways.
The history books are full of such changing cycles and it’s the point where some fortunes are lost while others are expanded. Our focus is on the latter. Thank you and it’s our continued pleasure to serve you.
Philip M. Byrne, CFA