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BFI Capital
September 17, 2020

Investors Love Their Bubbles!

Everyone seems to agree: stock markets are in bad need of a major correction… and yet, the markets march on and investors are in love with their liquidity-fed bubbles. So, while everyone is predicting a crash in the near future, the party has gone on for longer and stock indices have progressed farther than anyone would expected. And everybody seems to be wondering WHY.

We all know the foundation of the current stock market “boom” amidst a severe economic recession: central bankers want to keep interest rates low for as long as possible and create vast amounts of money in support of markets and the economy. For now, this leads to investors piling into the stock market based on something referred to as “TINA”, or, “There Is No Alternative…”.

For most investors, the only option they are considering is shares. Some do consider gold and silver. Others may have the means to invest in other real assets like real estate. But, for most, TINA applies and keeps blowing up the bubble of stocks. Central banks have been the main provider of additional air. However, governments have joined in heavy-handedly in response to the coronavirus.

Yet, there may be room for more. Fed Chairman Jerome Powell has now come out and openly demands more stimulus from the lawmakers in Congress, because new research says that spending, not lower rates, would do more to prevent deeper economic and pandemic-based scars. He said that he expects Congress to do more to help unemployed workers, businesses, and city and state governments who are hurting from the coronavirus pandemic.

President Trump continues to look like a big spender, which admittedly had – up until the coronavirus appeared – supported the US economy in finding growth. He will hardly slow his spending down anytime soon. Meanwhile, presidential candidate Joe Biden has stepped up (after now appearing in public again) and has proposed his vision of a multi-trillion dollar stimulus package, although it is unclear how much will be stimulus and how much will be “some new form of Green”.

Irrespective, more support is on the way. And this could all go on for quite a long time. An implicit element of the current state is the fact that the coronavirus, and the manner in which society is generally dealing with it (social distancing, banning of large events, or the “creative” micro-regulations found in all kinds of sectors from hotels and restaurants to stores), will keep economic growth low for an extended period.

Moreover, public and private debts continue to rise. They are at excessively high levels and will have to be dealt with, one way or another. And, these excessive levels of debt are VERY relevant, no matter what some experts and commentators have you believe. At some point, the fallout of the current mountain of debt will take its toll.

On this note: we are currently finishing up a special report, titled “On the Brink of a New Era – Are You Prepared?” and will be sending it to our clients and partners in the next few weeks, as a hardcopy. If you would like to have your free digital version, please get in touch as suggested below.

On the Brink of a New Era – Are You Prepared? Special Report by BFI Capital Group.

In this Special Report, we review the current state of the global economy and financial markets – pre-COVID and post-COVID. Some trends have been with us for a long time. They have been accelerated and augmented by the pandemic. However, they are not new. Amongst these trends, which we discuss thoroughly, are political and societal changes in the west, a slow but steady geo-political change of powers, demographic challenges and an overall configuration of economic factors that leave little room for error.

Ultimately, the biggest threat to the future is EXCESSIVE DEBT. The options available for governments to address and reduce this debt are very limited. They are economic growth, austerity, financial repression, inflation, and outright default. Out of these options, the two that are being employed already and will be the options of choice are financial repression (in all of its wonderful different forms) and inflation.

For investors, entrepreneurs, and families this creates a unique risk cocktail, particularly for Americans, that needs to be considered and managed prudently. In the report, we review the expected risks and give you an overview of choices and risk management measures suited to the New Era we expect ahead.


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