Investing in 2020 has been somewhat of a treacherous journey so far with many things impacting where we put our money for future investments. This year has seen governments around the world opting for fiscal stimulus to fight the war against COVID-19 and I would like to look at how this is going to change the way we invest for the future.
Something that hasn't made front page news, yet I believe to be so imperative that every investor must be aware of is the International Monetary Fund's (IMF) initiative dubbed 'The Great Reset'. The IMF was created in 1945 out of the Bretton Woods Conference, which saw gold being the basis for the US dollar and other currencies being pegged against the US dollar's value i.e. making the US dollar the world reserve currency. The organisation's purpose is to "ensure the stability of the international monetary system". Let's take a look at what has caused the Great Reset to occur and how future years may look for our world economy.
THE LONG-TERM DEBT CYCLE
It has been seen throughout history that every 50 to 75 years there's a rise and fall of an economic empire and has formed what is called the long-term debt cycle. The current US empire and the latest debt cycle began with the Bretton Woods movement in 1945, when the US dollar became the world reserve currency and has led the way to 2020 (75 years later).
What are the characteristics to look out for to identify a debt bubble? Let us look at what we're seeing today and see if there's a correlation. Debt bubbles have historically been formed through rapidly increasing levels of government debt and fiscal stimulus (money printing). How about I rattle off the alarming statistics to put things into perspective:
- US Government Debt growth has been exponential in the last decade
- US Debt to GDP is nearly at all-time highs, which was reached at the beginning of the current debt cycle in 1945
- US Fiscal Expenditure has grown aggressively from the COVID-19 pandemic
- Interest rates are nearly at zero
In prior years, government has been able to somewhat control their level of debt through the manipulation of interest rates. However, this was a one-way street and has come to an abrupt end with interest rates set to be at record lows for the years to come. So, if the government can't control spending through interest rates, what's the next step? Fiscal expenditure.
During the pandemic we've seen aggressive fiscal expenditure from not only the US but around the globe, simple economics shows us that the government is increasing the money supply into the market, where businesses are producing the same if not less than usual production pre COVID-19. Therefore, if supply goes down and there's more money within the market, eventual increase in demand will force consumer prices to rise and in essence devalue the dollar yet also increase asset prices (for those fortunate enough to hold onto assets such as previous metals and real estate).
If you ask me, I think we are in for a new world order in the years to come, especially after the IMFs annoucned of The Great Reset. Placing investments into real assets such as gold, real estate or bitcoin (further on this below) may prove to be wise as holding all of your wealth in cash will only be diminished if what is currently occurring continues in the future.
WHAT TO INVEST IN TO GET A HEAD START AFTER THE GREAT RESET
It's difficult to predict what investments will reap the rewards from a new world order as the future is unknown but here's a few investments that may be worthwhile:
GOLD
In 1945 the US dollar became the world reserve currency and was backed by gold i.e. the gold standard. This came to an end in 1971 after President Nixon severed the tie with gold and began the era of fiat money. In 2020 so far, we've seen gold reach all time highs as some investors seek to hold gold as a store of wealth. I think this may prove to be a worthwhile investment as gold will always have an element of tangible value to it and even if the world doesn't go back to a gold standard, it is unlikely to see a dramatic plunge of the gold price and I see this as a better option to store wealth than in fiat money (cash).
With a new world order on the horizon, it is possible that the economy will revert to a gold standard and ultimately raise the price of gold. Investment in gold can be done through the physical purchase of bullion, buying into gold mining companies or investing in a gold ETF.
REAL ESTATE/LAND
The COVID-19 pandemic has come with the realisation for many people that living in large cities isn't necessary and working remotely is sustainable. With interest rates at near zero, banks willing to lend money and home ownership rates on the rise, now may be a good time to purchase prime real estate or land. PLEASE make sure that you assess your financial strength before purchasing such an asset. Careless investing into property, a lack of research and accumulating too much debt can be disastrous to your long-term wealth growth. There is an argument that if banks continue to loosen lending restrictions, we could be facing another mortgage crisis as seen in 2007-2008. At this point it is a matter of weighing up what suits your scenario the best based on where you live and how much money you have.
I think investing in growth areas surrounding major cities (not apartments) will be of the most benefit for investors looking to achieve capital gains and long term wealth accumulation.
BITCOIN
Our generation has seen rapid growth in technology and eCommerce. I can walk around without a wallet anymore if need be as it holds everything I need; my credit/debit cards, my driver's licence, rewards cards etc. Who uses cash these days? It is this rationale that is leading investors to have a holding in Bitcoin or at least in another form of digital currency. Although I agree that one day we will see the end of physical cash and enter a cashless society powered by digital currency, I don't think the world is quite ready for this as of yet as it seems people are still wary of the security issues surrounding the digital world.
Although I persoanlly don't have an allocation into digital currency, I can see why the idea is tempting and is an asset category I am continually looking at to invest in.
SUMMARY
The economy we currently live in is going to drastically change with The Great Reset to take place next year in 2021 and positioning your investments to combat what may possibly be the new world order will be crucial. There are other investments options than those I have listed above, however, the main point I would like to get across is that holding onto cash only opens yourself to the risk of diminishing wealth as the world is set to part ways with fiat money. I believe having allocations in other asset categories will be the most beneficial strategy going forward.
Thank you for reading and let me know your thoughts!
Cheers,
TSI
WHAT YOU CAN READ/WATCH:
- Aftermath - Jim Rickards
- The Changing World Order - Ray Dalio
- The Peter Schiff Show - Peter Schiff
- The New Great Depression: Winners and Losers in a Post-Pandemic World - Jim Rickards (Release date 12th January 2021)
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