Every 50-75 years, the world goes through a massive correction cycle.
Stocks crash, bonds crash, real estate crash.
The world presses the "reset button".
Here is an entire explanation:
[A threadβ¦]
Stocks crash, bonds crash, real estate crash.
The world presses the "reset button".
Here is an entire explanation:
[A threadβ¦]
[1] Ray Dalio, in his book "The Changing World Order" speaks about the long-term debt cycle.
The world goes through an "expansion" and "recession" cycles (short cycles)
These ebbs and flows are connected by a long-wave called as the "long-term debt cycle".
The world goes through an "expansion" and "recession" cycles (short cycles)
These ebbs and flows are connected by a long-wave called as the "long-term debt cycle".
![[1] Ray Dalio, in his book "The Changing World Order" speaks about the long-term debt cycle.
The w...](https://pbs.twimg.com/media/FhlzWWbUAAAiTHu.jpg)
[2] Classic case:
- The economic growth after the 2008 crisis (2009 to 2020) was an expansion phase.
- The market crash post Covid 2020 and its impact till today is a shrinkage phase going on.
- All this is connected by long-term debt.
- The economic growth after the 2008 crisis (2009 to 2020) was an expansion phase.
- The market crash post Covid 2020 and its impact till today is a shrinkage phase going on.
- All this is connected by long-term debt.
[3] The chart depicts a series of negative events every 50-60 years.
- Despite all this crisis (70s, 2000s Dot com bubble, 2008 Financial crisis, 2020 Covid crash etc), the economy has not been derailed.
Why?
- Despite all this crisis (70s, 2000s Dot com bubble, 2008 Financial crisis, 2020 Covid crash etc), the economy has not been derailed.
Why?
![[3] The chart depicts a series of negative events every 50-60 years.
- Despite all this crisis (70s...](https://pbs.twimg.com/media/Fhl0xGNUAAEkW3K.jpg)
Because every time there is a crisis, Govts print insane amount of money to increase liquidity and bring about an economic growth.
This increases the debt on the world. And, hence long-term debt cycles are critical.
This increases the debt on the world. And, hence long-term debt cycles are critical.
[4] Think of it like this-
If your income is not increasing, but you want to buy more things, you will go and take a debt.
Governments do the same.
When it prints money, all the crisis is conveniently converted to a long-term problem, that is the long-term debt cycle.
If your income is not increasing, but you want to buy more things, you will go and take a debt.
Governments do the same.
When it prints money, all the crisis is conveniently converted to a long-term problem, that is the long-term debt cycle.
[5] Right now, there is a sharp rise in the world debt (due to the money printing post covid crisis), and it is close to its peak.
Will it go further up, or come tumbling down, and crash the markets?
For that, let us understand the stages of debt cycle in a simple way:
Will it go further up, or come tumbling down, and crash the markets?
For that, let us understand the stages of debt cycle in a simple way:
![[5] Right now, there is a sharp rise in the world debt (due to the money printing post covid crisis)...](https://pbs.twimg.com/media/Fhl1jF8UYAE0LI5.jpg)
[6]
-A new world order is established (Ex: US Empire, right now)
-They take increasing debts (to accelerate economic growth)
-A debt bubble is formed.
-The Debt bubble bursts (Sharp rise in interest rates, markets crash).
-A new world order is established (Ex: US Empire, right now)
-They take increasing debts (to accelerate economic growth)
-A debt bubble is formed.
-The Debt bubble bursts (Sharp rise in interest rates, markets crash).
![[6]
-A new world order is established (Ex: US Empire, right now)
-They take increasing debts (to...](https://pbs.twimg.com/media/Fhl1z4CVUAM5hN9.jpg)
[7] Which stage are we currently in?
Debt bubble bursting stage.
Lot of countries are facing internal and external conflicts:
USA, because of its money printing shenanigans post Covid. China, due to its housing crisis. Russia due to its economic crisis etc.
Debt bubble bursting stage.
Lot of countries are facing internal and external conflicts:
USA, because of its money printing shenanigans post Covid. China, due to its housing crisis. Russia due to its economic crisis etc.
[8] While there are many problems, let's analyse one.
Interest rates (the rate at which Central Banks lend to the other banks) are increasing.
So, all other rate of interests (home loan, car loan, education etc) increase.
Interest rates (the rate at which Central Banks lend to the other banks) are increasing.
So, all other rate of interests (home loan, car loan, education etc) increase.
If you get home loans at 9%, you might be able to repay it with some basic efforts.
If it becomes 12-13%, more people will default on their loans. People holding this debt (who have invested in these bonds), will suffer.
If it becomes 12-13%, more people will default on their loans. People holding this debt (who have invested in these bonds), will suffer.
[9] Because of this, the US Fed also want to sell some debt (actually, a huge 10%) of their debts (bonds held by them).
For such a large volume of selling, there wonβt be buyers. And this results in a huge crash in the debt markets.
Subsequently impacting the stock markets too
For such a large volume of selling, there wonβt be buyers. And this results in a huge crash in the debt markets.
Subsequently impacting the stock markets too
![[9] Because of this, the US Fed also want to sell some debt (actually, a huge 10%) of their debts (b...](https://pbs.twimg.com/media/Fhl2__NVEAEr9gS.png)
This will have a spillover effect on everything.
(For context, the stock market caps at $21 Trillion, while the size of the Debt market is $46 Trillion)
Are we in the end of the long-term debt cycle? Looks like yes.
(For context, the stock market caps at $21 Trillion, while the size of the Debt market is $46 Trillion)
Are we in the end of the long-term debt cycle? Looks like yes.
[10] Two other things that factor into the Debt bubble burst:
- Internal conflicts: Political chaos and conflicts, hate, etc inflicts a pain point.
- External factors: Like Russia-Ukraine war, covid crash, etc.
Is there anything we can do to stop this?
Sadly, no.
- Internal conflicts: Political chaos and conflicts, hate, etc inflicts a pain point.
- External factors: Like Russia-Ukraine war, covid crash, etc.
Is there anything we can do to stop this?
Sadly, no.
[11] You might think, βLet me move to stock market.β
But hey, a crash in debt market, will make the stock market crash too.
Then, which asset classes survive in this scenario?
1. Real Estate
2. Commodities: Gold, Silver
But hey, a crash in debt market, will make the stock market crash too.
Then, which asset classes survive in this scenario?
1. Real Estate
2. Commodities: Gold, Silver
Now before selling your entire portfolio, here is an optimistic perspective: (from Ray Dalio himself)
[12] Scenarios in which this crisis is prevented:
-Internal conflicts reduce, and political stability is established.
-Productivity levels of the world raise (in-turn resulting in GDP growth)
-De-militarization of world: avoiding external conflicts
-Internal conflicts reduce, and political stability is established.
-Productivity levels of the world raise (in-turn resulting in GDP growth)
-De-militarization of world: avoiding external conflicts
Finally, do I agree on this whole narrative? The commentary, yes.
- But in general, I have always been positive about growth in the world.
- So I pump in my money in all markets, and diversify into stock, debt, crypto, real estate etc.
- But in general, I have always been positive about growth in the world.
- So I pump in my money in all markets, and diversify into stock, debt, crypto, real estate etc.
If the debt bubble explodes then anyways, everything goes down with it.
So investing/not investing won't make a difference.
If you liked this somber but useful commentary, do consider retweeting the first tweet.
So investing/not investing won't make a difference.
If you liked this somber but useful commentary, do consider retweeting the first tweet.
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