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Stimulus and Knock On Effect Speculation


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Step 1: Print Money, Buy Bonds (EU, US, Japan)

Dampen 2008 financial crisis by creating money and use created money to buy bonds on the free market to “invigorate the economy”


Step 2: Boomers overweight Stocks

Interest rates drop and bonds no longer look appealing to savers/publicly run pensions in their portfolio. At the late stage of age 50-60 most future retirees used to be 20% stocks and 80% bonds to avoid risk. That stat has flipped now that bonds do not earn a meaningful amount of interest.


Step 3: Indexes are the New Hot Dog

All working age adults are enrolled in Defined Benefits Plans that are all index based. Indexes are buy at any price machines where any company of decent size or market cap is sliced up and ground into a USDA certified piece of the US economy. Most couldn’t tell you all the ingredients that went into it, but the price keeps going up and looks stable so why ask what it’s made of.


Step 4: The Everything Bubble

The money that used to flow into bonds flows into remaining asset classes like real estate, private equity, venture capital, and stocks lifting all ships with the rising tide of new flowing capital.


Step 5: Buybacks = Bigger Yachts

Corporate executives take advantage of low interest and issue debt in the form of corporate bonds. They use the capital raised from issuing bonds to repurchase their own shares and increase their own bonuses as the share price goes up. They don’t invest the capital in R&D, new facilities, or growth. Coincidentally Yacht Builders have quadrupled in head count over the past ten years.


——— ——Around the Corner ————


Step 6: RMDs not WMDS

The majority of invested capital is from the older generation. While pensions used to be the plat de jour corporations switched over to defined benefits plans or 401ks. Most retirees don’t know about “Required Minimum Distributions” or RMDs. Starting at age 70.5 you will be forced to sell a percentage of your retirement fund every year or be penalized 50% of the RMD you failed to sell. In other words I have a cookie jar and I will be forced to start eating some of my cookies every year or the IRS will take them away.


Step 7:  Lightning in a Dry Forest

Take your pick of market shocks

1. China Recession and/or Credit Crisis

2. Impeachment Standoff

3. Pension Crisis Standoff

4. Venture IPOs Flat, Think WeWork

5. Corporate Debt Re-Rated BBB

6. Private Equity Over Leveraged

7. RMDs

8. Trillion $ Student Loans and or Forgiveness

9. Auto Manufacturing Layoffs Really Start


Step 8: Boomers Play Musical Chairs With Stocks

The problem with Pensions and Individual retirement accounts being overweight stocks this late in the game is a large risk exposure for just a marginal increase in earnings. A Millennial can buy and hold and watch their S&P Index take a dive, a Boomer on the other hand has to make their savings last maybe another 30 or 40 years.


Step 9: A Home Buyers Market At Fair Price

- To make up for city, Police, Firemen, Teachers pensions underfunded, property taxes go up.

- Million dollar plain looking homes now pay $15K in property taxes

- Home Values Drop

- Boomers forced to sell 4 BR home at much lower price to recoup stock losses and avoid high property taxes eating their income

- Increased Defaults for Late Buyers


Step 10: The USD Loses It’s Shine

- Oil can now be bought in a variety of global currencies

- Dollar Reserves and Treasuries aren’t needed as much on a relative basis

- One Belt One Road means less need for USD


Final Step: Under-Performers Become Over-Performers

- Emerging Markets look more appealing

- Precious Metals and Crypto get Reappraised compared to “Risk Free” assets

- Commodities do well

- Balance Sheets, Loan Performance, Value Investing become sexy and new

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Yea theres a flaw in the last part....what value investments will work? The banks reliant on healthy economies and lending? Real estate tied to interest rates? Emerging markets that rely on western consumers and businesses? The autos? Airlines?


A lot of it, if not all, is tied together. There is indeed a lot of capital changing limited assets. The boomer assets will be scooped up by the institutions and the occasional millennial who doesnt piss their money away on Whole Foods and Starbucks..


And fwiw, at least here in NJ/NY/CT area, a 1.5% property tax is nothing. Try 3-4%. And we're still alive.

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