Prerequisite Capital writes…A traditional investment management paradigm is just not going to cut it in a world wrestling with the consequences of over indebtedness and hyper-active policy makers – disorientated & fearful capital will be the norm rather than the exception, this means vastly different market behaviour than what we’ve experienced the last 50 years. Click Here
Taking a step back and looking at things from a ‘bigger picture’… it is worth noting that:
a) Policy makers around the world are hyper-sensitive to holding back a wave of default, impairment and unemployment; both in private and public sectors.
b) The underperforming stock of resource allocation is progressively causing a declining return on capital, capital is being impeded from moving from less productive to more necessary uses – poor stewardship is being sustained at the expense of good stewardship, the stock & production of useful goods and services is progressively deteriorating.
c) Because less useful goods & services are being propped up longer, gradually the useful goods & services become more strained in their production… Question: what happens when supply becomes marginally constrained but demand slowly escalates in the face of insufficiency? Answer: Price rises in the stuff that matters. This is compounded by regulatory convolutions (like the US health system) and prices accelerate whilst the quantity & quality of useful goods/services deteriorates. This confuses many participants, as they see evidence of ‘inflation’ amidst useful goods/services, but overall in the system we see broader disinflationary trends due to the effects of maintaining under-productive structures – this is in totality not an inflation issue but a falling living standard issue.
d) With market mechanisms being impeded (by policy makers and regulations) from remedying the insufficiencies of the system, political mechanisms increasingly will be resorted to.
e) The incumbent political and governing classes (& even their new recruits) are inclined to selfpreservation & advancement first and foremost, with all other stakeholders in society (& their differing needs) subservient to this.
f) Political machinations within a socialist/fascist societal paradigm tend towards the erosion of liberty, property rights, good stewardship, the flexible & productive allocation of resources (that enhance the sustainable production of useful goods & services required to underpin rising living standards). a. Different countries are at different points in this progression – which cause ‘sequencing’ issues that drive both capital & people flows.
g) If civil political processes are not able to effect successful remedies to the insufficiencies & imbalances, then probabilities escalate towards violent upheaval.
h) The political/governing class, sensing or foreseeing potential societal violent upheaval either preposition to harness this uprising and/or seek to refocus it upon external threats or scapegoats of circumstances – misdirecting clear thinking & focus upon themselves.
i) History is ‘rhyming’ again…
I would like to add what Joe weisenthal of bloomberg wrote this morning.
I think it is important that investors understand this paradigm shift and prepare accordingly.