Reaching a “Critical Point” in the complex financial system
Reality Check from professor Kotlikoff – also a presidential candidate!
Dr Lacy Hunt explains that debt AND growth are about to get much worse at an accelerating rate
Foreign Central Banks are liquidating Treasuries at a record rate
And buying gold at the fastest pace since the 1960s
Meanwhile, the latest data continues to show weakness.
Richmond Fed lowest since 2008
NY Fed recession probability index is also at the highest since 2008
Fed Labor Market Index signals recession
“Restaurant business unequivocally bad”
More workers need multiple jobs
Luxury housing has big price cuts
Industrial Recession: The worst losing streak ever
Dynamic Asymmetry
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Reaching a “Critical Point” in the complex financial system
Last week I talked about policy and markets moving beyond the “Minsky Moment”, as shown in last week’s header chart, into a new phase of behavior and conditions. This could also be considered in complexity theory terms as reaching a “Critical Point”.
“A system that is at a critical point has an extremely high degree of connectivity between its subunits: everything depends on everything else! Complex systems are said to be poised at such a position, between order and chaos.”
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2465602/
A transition between order and chaos is a key moment for portfolios, therefore, as it is a significant behavioral change from relative stability into a situation of dynamic non-linear asymmetry. These are conditions where long term options can potentially completely transform returns.
However, I am getting ahead of myself. The first point to realize is that a reality check on what investors think they know has become essential. Don’t be the guy below. Stocks haven’t even being doing that great for 2 years now. They are unchanged YOY.
Reality Check from professor Kotlikoff – also a presidential candidate!
Laurence Kotlikoff has been working on this for decades, and he points out many uncomfortable truths about the US economy.
“If you look at the fundamentals, and the fundamentals look like that of an emerging country, we are the most indebted developed country relative to GDP of any country around. We are in worse shape, I believe, than Russia or Greece, and far worse shape than Italy.”
In addition Dr Lacy Hunt explains that debt AND growth are about to get much worse at an accelerating rate
http://ggc-mauldin-images.s3.amazonaws.com/uploads/pdf/OTB_Oct_26_2016.pdf
How this is so poorly understood is a travesty of economics as the evidence is becoming overwhelmingly clear over 5 decades. Just read on.
The current financial system started in 1968, and GDP growth per capita has collapsed ever since and is now only just above zero!
Over the last 50 years GDP per Capita has collapsed from around 3.5% to around 0.5%!
Foreign Central Banks are liquidating Treasuries at a record rate
Foreign central banks seem to see a problem, and are selling at a record pace.
And buying gold at the fastest pace since the 1960s
Gold now better than dollars according to what they are doing!
Meanwhile, the latest data continues to show weakness.
Richmond Fed lowest since 2008
http://www.zerohedge.com/news/2016-10-25/richmond-fed-confirms-weakest-economic-trend-2008
NY Fed recession probability index is also at the highest since 2008
Fed Labor Market Index signals recession
“Restaurant business unequivocally bad”
More workers need multiple jobs
Credit card delinquences are rising
Luxury housing has big price cuts
Industrial Recession: The worst losing streak ever
Dynamic Asymmetry
The central banks want to believe, and want everyone else to believe, that things will get better, the system is safeguarded, and ultimately their policies will work. It isn’t and it won’t, portfolios are far from safe, and there is clearly no chance their policies will work.
The limits of this system, and belief in this system, must now be close. Central banks may well try and take extraordinary measures to retain control. Like tighten policy into a recession! However, beyond the very short term that will only accelerate the collapse of the system.
“There have only been TWO previous points in history where real economic growth was below 2% at the time of the first quarterly rate hike – 1948 and 1980. In 1948, the recession occurred ONE-quarter later and THREE-quarters following the first hike in 1980.”
“Policy makers have no endgame, markets do” says Stan Druckenmiller, the most successful hedge fund manager of all time.
Do what the central banks are doing, not what they are saying.
Ensure you have an adequate gold allocation. Look at gold miners, and when you have dynamic asymmetry of this potential magnitude consider long term gold mining calls. These have the great advantage of allowing risk to be clearly defined while permitting explosive potential.
