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One of the best @RealVision interviews in recent times with @RaoulGMI & Felix Zulauf. The opening half hour where he describes the current structural shift in global markets (and society in general) was full of wisdom, yet also harrowing.
My notes as follows
My notes as follows
We have late cycle factors like extreme speculation & at the same time an early cycle environment with a depressed economy coming out of a recession. A mixed bag causing a structural shift in how policy makers set the framework for our system.
Felix is a lifetime deflationist & has always seen the end game, *should free markets prevail*, as being a deflationary problem. But our system needs growth to function, so over time policy makers have moved away from free markets.
Factors like zombie companies & poor demographics creates major structural problems for a system that needs ever more growth. Central banks have tried to create growth by pushing free money & it hasn't worked. Now we're moving away from a free market to a planning economy.
Rather than letting free markets run into a deflationary washout, they'll change the system to prevent it. Outcome: more govt involvement, less efficient economies, less growth, more regulation, less free markets, more inflation.
The Central Bankers tried to steer the business cycle & smooth it, which in doing so has structurally weakened the system. Now we're so far down the road that the planning economy is the only solution - we can't let the system clear itself out.
The politicians love this, because they become ever more powerful in a planning economy. The pandemic has been the perfect excuse to increase it. A deflationary outcome is a no-go for any politician who wants to be elected.
This creates a crony capitalist type economy & they'll provide whatever liquidity is needed to keep the system going, because the system needs high asset prices. The structural change is the intervention to avoid a full blown bear market.
The demographics now are the opposite of the 40's period where the boomers generation allowed the planned economy to work & debt to inflate away. Now is the opposite demographic setup.
In the short term, there's many factors that could cause inflation. The reversal of globalisation, the inefficiency of planned supply chains & weak balance sheets of Asian exporters forcing them to raise prices could all lead to CPI of 3%+.
Big government infrastructure projects will likely be the tool they use if it is to stick, which could be pulled forward if the current reflation scenario does not play out & there's another big deflationary shock.
All of the government debt has ended up on the balance sheets of the central banks, who cannot go bust. At some point, they can pull a trick like changing all that debt into a perpetual 0% coupon. They'll do whatever is required to keep the game going.
The payback is that you lose prosperity and more people in the system become reliant on the government, who are victims and prisoners of their policies. It's a slow move back to the communist system, in a way. The structural bear market is shifted to our freedom & prosperity.
It's a bull market in regulation, Trump was just a correction in the trend. It will take a while for the governments to go after big tech, because the politicians need someone to support them. We saw the shift from 'say what you want' to censorship during the US election.
Another side effect will be a big increase in taxation, particularly wealth taxes. These will be murder for retirees, as it pushes them further out the risk curve to sustain their same level of wealth. At some point you have a tipping point where people revolt against the govt.
These problems are evident all throughout the Western world & whilst Asia has a far better setup now, these same issues will likely become evident in one generations time for them too. [End]
