Macroeconomic Trends & Value Investing Strategy
I wanted to touch on an important topic that often gets overlooked or not discussed in the Cryptoasset space. This discussion has to do with global macroeconomic trends and how Cryptoassets fit into the larger overall picture. If you aim to be a disciplined and successful value investor, you have to take global macro trends into account as they absolutely play a vital role in the Crypto markets.
Critical Issues - Since the last market downturn, the divide bt/wn US household wealth versus GDP has grown significantly. Almost all asset classes - stocks, bonds, property, crypto - have benefitted from an extremely loose monetary policy (including SEVEN YEARS of zero percent interest rates in the US and negative interest rates abroad) over the past number of years. Low-interest rates mean increasing asset values and distortion is introduced into the markets. In these times, asset valuations become detached from their true intrinsic value as investors continue to allocate money into riskier assets in order to increase return and yields. As interest rates are now on the rise and inflation has returned as a concern, asset prices are vulnerable to a correction.
Margin/Credit Debt - Margin & Credit debt reached a record high level in January 2018. Leverage leads to increases in volatility. The magnification that leverage brings can cause extreme market swings when things begin to unwind.
Volatility - Last year, the S&P 500 moved 2% or more in a day zero times. There have been six 2% plus moves in 2018 in the first quarter of 2018. High valuations and high leverage across the board have introduced volatility back into markets in 2018.
Global Trends - Worldwide government stimulus plans, increasing debt levels, excessive spending and monetary policies, growing support of protectionist measures (aka opposition to free trade agreements) should be cause for concern for any investor. Japan has exploded gov. debt and market manipulation while their economy has stagnant income and slow GDP growth. China has increased debt levels and a surge in speculative investments. Europe has an overburdened social welfare state and few countries have mass amounts of debt. The US major issue is its underfunded public and private pension fund obligations.
The key takeaway is that it is important to be mindful of global macroeconomic trends as any number of discussed issues could lead to major market disruptions. Make sure you have a financial strategy to protect yourself and loved ones. It is important to only invest what you can afford to lose and do not bring on any debt obligations that could put you in a difficult position if (and when) economic conditions change. The key to value investing is Capital Preservation. Develop a strategy that allows you to be in a position to be offensive when market distortion is low and asset valuations are more in line with their true intrinsic value - and hopefully a whole lot cheaper!
Critical Issues - Since the last market downturn, the divide bt/wn US household wealth versus GDP has grown significantly. Almost all asset classes - stocks, bonds, property, crypto - have benefitted from an extremely loose monetary policy (including SEVEN YEARS of zero percent interest rates in the US and negative interest rates abroad) over the past number of years. Low-interest rates mean increasing asset values and distortion is introduced into the markets. In these times, asset valuations become detached from their true intrinsic value as investors continue to allocate money into riskier assets in order to increase return and yields. As interest rates are now on the rise and inflation has returned as a concern, asset prices are vulnerable to a correction.
Margin/Credit Debt - Margin & Credit debt reached a record high level in January 2018. Leverage leads to increases in volatility. The magnification that leverage brings can cause extreme market swings when things begin to unwind.
Volatility - Last year, the S&P 500 moved 2% or more in a day zero times. There have been six 2% plus moves in 2018 in the first quarter of 2018. High valuations and high leverage across the board have introduced volatility back into markets in 2018.
Global Trends - Worldwide government stimulus plans, increasing debt levels, excessive spending and monetary policies, growing support of protectionist measures (aka opposition to free trade agreements) should be cause for concern for any investor. Japan has exploded gov. debt and market manipulation while their economy has stagnant income and slow GDP growth. China has increased debt levels and a surge in speculative investments. Europe has an overburdened social welfare state and few countries have mass amounts of debt. The US major issue is its underfunded public and private pension fund obligations.
The key takeaway is that it is important to be mindful of global macroeconomic trends as any number of discussed issues could lead to major market disruptions. Make sure you have a financial strategy to protect yourself and loved ones. It is important to only invest what you can afford to lose and do not bring on any debt obligations that could put you in a difficult position if (and when) economic conditions change. The key to value investing is Capital Preservation. Develop a strategy that allows you to be in a position to be offensive when market distortion is low and asset valuations are more in line with their true intrinsic value - and hopefully a whole lot cheaper!
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