Stepping Back – “Forest from the Trees”

Those analysts or investment houses not predicting a financial crash this year are at least fairly unanimous that it will be a volatile one.  Yesterday we posted a nice succinct must read article* by Hebba Investments which steps back and concentrates on the core issue… debt v growth.  In a nutshell this latest credit cycle is showing clear signs of imploding.  Growth has been fuelled by record debt, debt growth has significantly outpaced GDP growth, this simply is unsustainable.  It’s not just a US, China, Europe or Japan problem, it is a globally interlinked problem.

It’s also a macro (forest) problem in a market fixated on micro (trees) data.  Last week it was the strong US employment figures (‘rally’ short lived, macro wins), yesterday we saw stronger than expected Chinese trade data (rally short lived, last night US shares plunged 2.5%, macro wins – watch Australia follow suit today).

“Macro”, the core issue, must always win in the end.  The market has rallied on a debt binge that just escalated to new highs after the GFC.  It rallied on free money looking for a return, not on fundamentals.  That is not in any way sustainable.  As we repeatedly remind you (of that famous quote) the 4 most expensive words in investment are “its different this time”.

Hebba talk about the forest from the trees, and we may well just see more volatility for a while as the various micro signs confuse the market.  But it might also crash tomorrow.

As yesterday’s article reminds us, the credit cycle has been repeated time and time again throughout history.  Gold has always been the protector of wealth, the only real money when the rug is pulled from the fake/Fiat money bandwagon. 

(*  Please note – when posted yesterday only part of that article was included.  This has been fixed now and you can read the full article.)