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Investors Are Drunk On Credit

business cycles - credit cycles - investment cycles - all asset markets go through cycles

 

Why should you step away from the spiked punch bowl?

That is a good question.

Is there a time to expand credit, and a time to contract borrowing? A time to invest in the stock market, and a time to refrain from stock market investing? A time to every purpose under heaven?

When governments, businesses, and most people are looking to loan or borrow more why would anyone seek to escape the party?

Why should you?

The Business Week cover story of August 13th, 1979 proclaimed "The Death of Equities." Everyone knew that commodity futures, gold, diamonds, and real things were the only protection from inflation. With the Dow Jones stuck under 900, it could only go lower, even pension funds were deserting stocks for commodity funds and art work -- "things." Financial assets were dead. Of course this was close to the bottom of the stock market and to a top for physical assets.

Twenty-five years later financial assets rule the world. Gold has been called a "barbaric relic," commodities have been a dangerous waste of money for decades. Now however, the tide has turned. Interest rates were artificially low, and due to governments printing money - inflation has started to grow. Once again things are starting to increase in value as financial (paper) assets flounder. It will be a long ride, with many ups and downs, but in a decade those who are in debt to own paper assets will have lost a great amount.

I don't know how or when the crowd will realize the tide has gone out and the beach is larger. By then it will be the middle or latter in the new cycle. The crowd's losses will not be recovered until the tide once more is ready to shift, and they will once again re-learn and re-lose through hard lessons.

Your first Speculation Rule:

Asset classes rise and fall in long term cycles.

Try to anticipate change and prepare early.

We may have finally arrived at the long forecast Death of Equities and the birth of a new asset class cycle - long live the new king.

 

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