Democrats continue spastic over Kushner when they should be concerned about The Iran Deal, N Korea's missile launches, the doubling of the deficit in the last eight years, a bankrupt health care plan but all of these ominous events caused by Obama and his legacy must be protected and polished at all costs even if it means bringing what is left of our nation down even more.
The Democrat goal is to Impeach Trump and everything else must take a back seat.
It is going to prove fascinating how Trump handles the N Korean hot potato he inherited and which constitutes a serious component of the "mess" Democrats argue does not exist. I seriously doubt China will provide the reliable help Trump expects. Eventually we may have to strike N Korea with everything we have and do so without warning. As for Sec. of Defense Mattis' comment that it will prove a catastrophic event, the answer is yes, but the threat N Korea poses has become only more so with all the failed diplomatic niceties and initiatives.
Like with all tyrants and bullies, you feed them and it simply increases their appetite. This is the same case with Abbas, with the Castro brothers, and was with Chamberlain's Hitler. There comes a time when action , decisive action, is the only thing they understand. Weakness is the food on which bullies feed and Obama proved a dangerous dreamer and totally wrong on so many fronts from defense to health care, budget deficits and transforming our society while ignoring Islamist Terrorism..With each passing day it is hard for me not to conclude Obama did not want to cripple and defang our nation Even the timing of his recent trip to Europe made him an interloper in my eyes.
A preemptive strike on N Korea would also send a clear message to Iran, the other "mess component" Trump inherited from Obama, is left to solve and Democrats deny exists. They scream about Trump and his son-in-law colluding with the enemy. Democrats are the true party of traitors. The Republican Party is simply one filled with zombies who fight among themselves while talking about what they plan to accomplish and never do.
When will Trump's Justice Department start re-opening some of the investigations regarding The IRS scandal, Hillary's uranium deal, the selling of illegal weapons to the Mexican Dope crowd etc? When will Republicans call for another "Mueller type" to take up these investigations?
Start fighting back Trump! Don't depend on the Republicans, they are not going to defend you. They don't even know how to defend themselves. The longer you sit silent the mass media and their Democrat lackies will be allowed to paint you in the corner and with your own brush.
The elected no longer govern us. (See Kim's latest op ed from last week below and read Ken Buck's "Drain The Swamp.".)
This was sent to me by a dear friend and fellow memo reader. (See 1a below.)
as was this. (See 1b below.)
The current owner of the Washington Post and founder of Amazon may become the Soros equivalent of the media world.
+++++++++++++++++
Interesting investment article by Mauldin entitled "The Great Reset" . (See 2 below.)
=====
Dick
++++++++++++++++++++++
1) Anatomy of a Deep State
The EPA’s ‘Science Integrity Official’ is plotting to undermine Trump’s agenda.
Francesca Grifo testifying before Congress. PHOTO: SCIENCE DEMOCRATS/You Tube
By Kimberley A Strassel
On May 8 a woman few Americans have heard of, working in a federal post that even fewer know
exists, summoned a select group of 45 people to a June meeting in Washington. They were almost
exclusively representatives of liberal activist groups. The invitation explained they were invited to
develop “future plans for scientific integrity” at the Environmental Protection Agency.
Meet the deep state. That’s what conservatives call it now, though it goes by other names. The
administrative state. The entrenched governing elite. Lois Lerner. The federal bureaucracy. Whatever
the description, what’s pertinent to today’s Washington is that this cadre of federal employees,
accountable to no one, is actively working from within to thwart Donald Trump’s agenda.
There are few better examples than the EPA post of Scientific Integrity Official. (Yes, that is an actual
job title.) The position is a legacy of Barack Obama, who at his 2009 inaugural promised to “restore
science to its rightful place”—his way of warning Republicans that there’d be no more debate on
climate change or other liberal environmental priorities.
Team Obama directed federal agencies to implement “scientific integrity” policies. Most agencies
tasked their senior leaders with overseeing these rules. But the EPA—always the overachiever—
bragged that it alone had chosen to “hire a senior level employee” whose only job would be to “act as
a champion for scientific integrity throughout the agency.”
In 2013 the EPA hired Francesca Grifo, longtime activist at the far-left Union of Concerned Scientists.
helped write—by Republican “political appointees” and “industry lobbyists” who had “manipulated”
science on everything from “mercury pollution to groundwater contamination to climate science.”
As Scientific Integrity Official, Ms. Grifo would have the awesome power to root out all these
meddlesome science deniers. A 2013 Science magazine story reported she would lead an entire
Scientific Integrity Committee, write an annual report documenting science “incidents” at the agency,
and even “investigate” science problems—alongside no less than the agency’s inspector general.
And get this: “Her job is not a political appointment,” the Science article continues, “so it comes with
civil service protections.” Here was a bureaucrat with the authority to define science and shut down
those who disagreed, and she could not be easily fired, even under a new administration.
Ms. Grifo perhaps wasn’t too busy in the Obama years, since EPA scientists were given carte blanche
to take over the economy. She seems to have been uninterested when EPA scientists used secret
meetings and private email to collude with environmental groups—a practice somewhat lacking in
scientific integrity.
She has been busier these past few months. In March the Sierra Club demanded that the EPA’s
inspector general investigate whether the agency’s newly installed administrator, Scott Pruitt, had
violated policy by suggesting carbon dioxide might not be the prime driver of global warming. The
inspector general referred the matter to . . . the Scientific Integrity Official. So now an un-elected,
un-appointed activist could pass judgment on whether the Senate-confirmed EPA chief is too
unscientific to run his own agency. So much for elections.
There’s also that “scientific integrity” event planned for June. Of the 45 invitations, only one went to
an organization ostensibly representing industry, the American Chemistry Council. A couple of
academics got one. The rest? Earthjustice. Public Citizen. The Natural Resources Defense Council.
Center for Progressive Reform. Public Employees for Environmental Responsibility. Reporters
Committee for Freedom of the Press. Environmental Defense Fund. Three invites alone for the Union
of Concerned Scientists. Anyone want to guess how the meeting will go?
This is a government employee using taxpayer funds to gather political activists on government
grounds to plot—let’s not kid ourselves—ways to sabotage the Trump administration. Ms. Grifo did
not respond to a request for comment.
Messrs. Pruitt and Trump should take the story as a hint of the fight they face to reform government.
It’s hard enough to overcome a vast bureaucracy that ideologically opposes their efforts. But add to
the challenge the powerful, formalized resistance of posts, all across the government, like the
Scientific Integrity Official. Mr. Obama worked hard to embed his agenda within government to e
nsure its survival. Today it is the source of leaks, bogus whistle blower complaints, internal sabotage.
Pitched battle with these folks is no way to govern. The better answer is dramatic agency staff cuts—
maybe start with the post of Scientific Integrity Official?—as well as greater care in hiring true
professionals for key bureaucratic posts. The sooner department heads recognize and take action
against that deep state, the sooner this administration might begin to drain the swamp.
1a) Lots of ties to Russia ( If only people would inform themselves).
Remember when Donald Trump was business partners with the Russian government and his company got 53
1a) Lots of ties to Russia ( If only people would inform themselves).
Remember when Donald Trump was business partners with the Russian government and his company got 53
million from the Russian government investment fund called Rusnano that was started by Vladimir Putin and is
referred to as "Putin's Child"? Oh wait that wasn't Trump it was John Podesta.
Remember when Donald Trump received 500 thousand for a speech in Moscow and paid for by Renaissance
Remember when Donald Trump received 500 thousand for a speech in Moscow and paid for by Renaissance
Capital, a company tied to Russian Intelligence Agencies? Oh wait that was Bill Clinton.
Remember when Donald Trump approved the sale of 20% of US uranium to the Russians while he was Secretary of State which gave control of it to Rosatom the Russian State Atomic Energy Corporation? Oh wait that was Hillary Clinton.
Remember when Donald Trump lied about that and said he wasn't a part of approving the deal that gave the
Remember when Donald Trump lied about that and said he wasn't a part of approving the deal that gave the
Russians 1/5 of our uranium, but then his emails were leaked showing he did lie about it? Oh wait the was Hillary
Clinton and John Podesta.
Remember when Donald Trump got 145 million dollars from shareholders of the uranium company sold to the
Remember when Donald Trump got 145 million dollars from shareholders of the uranium company sold to the
Russians? Oh wait that was Hillary Clinton and the Clinton Foundation.
Remember when Donald Trump accepted millions in donations from Russian Oligarchs like the chairman of a
Remember when Donald Trump accepted millions in donations from Russian Oligarchs like the chairman of a
company that's part of the Russian Nuclear Research Cluster, the wife of the mayor of Moscow, and a close pal
of Putins? Oh wait that was the Clinton Foundation.
Remember when Donald Trump failed to disclose all those donations before becoming the Secretary of State,
Remember when Donald Trump failed to disclose all those donations before becoming the Secretary of State,
and it was only found out when a journalist went through Canadian tax records? Oh wait that was Hillary Clinton.
Remember when Donald Trump told Mitt Romney that the 80s called and it wanted its Russian policy back. The
Remember when Donald Trump told Mitt Romney that the 80s called and it wanted its Russian policy back. The
Cold War is over? Oh wait that was President Obama.
1b) Dick, you are right the Republican party, especially members of Congress, have to get into the fight. But the
most important fight of all is taking on the institution of the media. Six major corporations (the Big Six) control
90% of the media outlets. They are playing a nasty political game that we used to refer to at IBM as generating
fear, doubt, uncertainty, and suspicion. There are constitutional limitations to the ability of the administration to
fight back. But we are not bound by first amendment freedom of the press. That makes the Big six vulnerable to
organized grassroots deplorables/activists using social media like Facebook and Twitter, emails and phone calls. The strategic principle is to make them radioactive, contagious, and toxic. The media's points of vulnerability are: The value of their stock, the
members of their Board of Directors, their FCC licenses, their sponsors, their affiliates, their access to public
places like airports, restaurants and bars. We should contact Brent Bozell and Tim Graham at the media
research center to get background and contact information on the six major corporations and their primary media
outlets. Strange as it may sound, the biker community might be an effective group in the early stages.
1b) Dick, you are right the Republican party, especially members of Congress, have to get into the fight. But the
most important fight of all is taking on the institution of the media. Six major corporations (the Big Six) control
90% of the media outlets. They are playing a nasty political game that we used to refer to at IBM as generating
fear, doubt, uncertainty, and suspicion. There are constitutional limitations to the ability of the administration to
fight back. But we are not bound by first amendment freedom of the press. That makes the Big six vulnerable to
organized grassroots deplorables/activists using social media like Facebook and Twitter, emails and phone calls. The strategic principle is to make them radioactive, contagious, and toxic. The media's points of vulnerability are: The value of their stock, the
members of their Board of Directors, their FCC licenses, their sponsors, their affiliates, their access to public
places like airports, restaurants and bars. We should contact Brent Bozell and Tim Graham at the media
research center to get background and contact information on the six major corporations and their primary media
outlets. Strange as it may sound, the biker community might be an effective group in the early stages.
The deplorable's were responsible for saving this country from careening towards globalism and the loss of our
sovereignty. (The Big Six are globalists. ) Most of the Deplorables understood to one degree or another the
magnitude of the battle that would follow. As BHO said, "Power doesn't conceded easily." The American patriot
is not only responsible to vote for the leader of the free world, but he is also responsible for actively creating the
conditions for that leader to be successful. During the election, I would hear callers to talk radio shows say to
the host, "Tell me what I can do." They were disgusted by what the liberals have been doing to the country and
that hasn't changed. They're ready to be re-mobilized.
Freedom is something that you never really have; you have to fight to get it, you have to fight to keep it, and if
you ever stop, it's gone.
R-- D-------
++++++++++++++++++++++++++++++++++++++++++++++++
2)By John Mauldin | May 22, 2017
The Great Reset: How Should We Then Invest?
“A speculator is one who runs risks of which he is aware, and an investor is one who
runs risks of which he is unaware.”
– John Maynard Keynes
runs risks of which he is unaware.”
– John Maynard Keynes
“The biggest mistake investors make is to believe that what happened in the recent
past is likely to persist. They assume that something that was a good investment in
the recent past is still a good investment. Typically, high past returns simply imply
that an asset has become more expensive and is a poorer, not better, investment.”
– Ray Dalio, founder, Bridgewater Associates, LP
past is likely to persist. They assume that something that was a good investment in
the recent past is still a good investment. Typically, high past returns simply imply
that an asset has become more expensive and is a poorer, not better, investment.”
– Ray Dalio, founder, Bridgewater Associates, LP
This letter and next week’s will be two of the most important I’ve ever written. They will set
out my philosophy about how we have to invest in the coming days and years. They are the
result of my years of actually working with clients and money managers and thinking about
the economic and particularly the macroeconomic world. Because of some of the
developments I will be discussing, I think the future is likely to be extremely challenging for
traditional portfolio allocation models. The letters also discuss my thinking on new
developments in markets that allow us to more quickly adapt to our ever-shifting environment,
even when we don’t know in advance what that environment will be. I hope you find the
letters helpful.
out my philosophy about how we have to invest in the coming days and years. They are the
result of my years of actually working with clients and money managers and thinking about
the economic and particularly the macroeconomic world. Because of some of the
developments I will be discussing, I think the future is likely to be extremely challenging for
traditional portfolio allocation models. The letters also discuss my thinking on new
developments in markets that allow us to more quickly adapt to our ever-shifting environment,
even when we don’t know in advance what that environment will be. I hope you find the
letters helpful.
Longtime readers know that this letter tends to talk more about our global economy’s
problems than about its positive opportunities. That’s not to say that I ignore the
opportunities. In fact, about half of my next book will focus on the tremendous potential I
see developing over the next 20 years.
problems than about its positive opportunities. That’s not to say that I ignore the
opportunities. In fact, about half of my next book will focus on the tremendous potential I
see developing over the next 20 years.
I am extraordinarily optimistic about the “human experiment” as we move deeper into this
century. I foresee more of the world lifted out of poverty and afforded more of the necessities
and even the luxuries of life, a much cleaner environment, steadily decreasing warfare, and
healthcare radically altered in a positive manner. I truly believe most of us will live much
longer than we currently imagine. In the not-too-distant future we will conquer many of the
diseases that cut life so tragically short. Given this view, how is it possible to not be
optimistic?
century. I foresee more of the world lifted out of poverty and afforded more of the necessities
and even the luxuries of life, a much cleaner environment, steadily decreasing warfare, and
healthcare radically altered in a positive manner. I truly believe most of us will live much
longer than we currently imagine. In the not-too-distant future we will conquer many of the
diseases that cut life so tragically short. Given this view, how is it possible to not be
optimistic?
But other less benevolent trends cast deep shadows on that positive outlook. I think we are
rapidly coming to the point where there is no simple way to avoid them. Much of our
comfortable society is going to be radically altered, bringing new expectations and
frustrations. Unfortunately, these trends will have an enormous impact on our investments.
As I travel around the country, I am often asked after my speeches or at dinner, “John, I have
the same concerns. But what do I do about my investments, my family,– especially my
children – and my business?”
rapidly coming to the point where there is no simple way to avoid them. Much of our
comfortable society is going to be radically altered, bringing new expectations and
frustrations. Unfortunately, these trends will have an enormous impact on our investments.
As I travel around the country, I am often asked after my speeches or at dinner, “John, I have
the same concerns. But what do I do about my investments, my family,– especially my
children – and my business?”
I will admit my answers have often been personally unsatisfactory, at least with regard to
investing, which is my “day job.” Many potential solutions are not available to the average
person or don’t address the total problem.
investing, which is my “day job.” Many potential solutions are not available to the average
person or don’t address the total problem.
I have spent the better part of four years – and in some ways the last 35+ years of my
financial industry career – looking for those answers and trying to come up with an approach
that not only makes sense but that also has a broader reach – an answer not designed just
for a few high-end investors in one particular country but something that could eventually be
available and useful to everyone, everywhere.
financial industry career – looking for those answers and trying to come up with an approach
that not only makes sense but that also has a broader reach – an answer not designed just
for a few high-end investors in one particular country but something that could eventually be
available and useful to everyone, everywhere.
Finding the answer hasn’t been easy, because all the apparent “best solutions” seem to
have market and regulatory issues. Some are only available to certain sets of investors or
bring other problems along with them. Some of the things I wanted to do weren’t even t
echnologically possible four or five years ago. But the markets and technology have evolved
(rapidly!) to make it possible to now approach our portfolios in a systematic way that allows
us to counter negative trends.
have market and regulatory issues. Some are only available to certain sets of investors or
bring other problems along with them. Some of the things I wanted to do weren’t even t
echnologically possible four or five years ago. But the markets and technology have evolved
(rapidly!) to make it possible to now approach our portfolios in a systematic way that allows
us to counter negative trends.
This letter will cover the philosophical underpinnings of my thinking. I’ll also introduce some
investment tools (which I will give you access to through a link later on in the letter) that
express that philosophy, but you could also design a different answer that fits your own (or
your client’s) portfolio construction.
investment tools (which I will give you access to through a link later on in the letter) that
express that philosophy, but you could also design a different answer that fits your own (or
your client’s) portfolio construction.
First, let me quickly review the investing challenges as I see them. First, there is the
massive imbalance between the debts governments owe and the promises governments
have made, sure to cause enormous market turmoil, the timing of which will be somewhat
unpredictable.
massive imbalance between the debts governments owe and the promises governments
have made, sure to cause enormous market turmoil, the timing of which will be somewhat
unpredictable.
Second, there has been a common misperception of critical points that Harry Markowitz
made in his 1952 graduate student paper that eventually became his 1990-Nobel prize-
winning work that we now call Modern Portfolio Theory (MPT). We have followed an
interpretation of MPT that in my opinion could cause great damage to the returns and
retirement lives of investors. We need to update our thinking to incorporate what I think of
as MPT 2.0. Premature optimization is a major portfolio problem.
made in his 1952 graduate student paper that eventually became his 1990-Nobel prize-
winning work that we now call Modern Portfolio Theory (MPT). We have followed an
interpretation of MPT that in my opinion could cause great damage to the returns and
retirement lives of investors. We need to update our thinking to incorporate what I think of
as MPT 2.0. Premature optimization is a major portfolio problem.
Third, we must understand that the underlying core investments in most portfolios are
undergoing radical changes, which makes any backward-looking portfolio model essentially
worthless. I can truly assert that the standard investment line that “Past performance is not
indicative of future results” has never been more true than it is today.
undergoing radical changes, which makes any backward-looking portfolio model essentially
worthless. I can truly assert that the standard investment line that “Past performance is not
indicative of future results” has never been more true than it is today.
Further, the way we determine relative value within an asset class (especially equities) is
being short-circuited in a way that could seriously impair traditional active asset
management.
being short-circuited in a way that could seriously impair traditional active asset
management.
And yet we can’t retreat from the market. The only way we can grow our portfolios and
income, other than by being involved in our own businesses, is by saving and investing our
earnings. But as I’ll describe below, markets will be volatile at best and destructive at worst.
So how do we stay in the market yet avoid negative outcomes? How do we use “MPT 2.0”
to diversify among asset classes and smooth out long-term returns in our portfolios when, if
I am right, all that diversification may simply diversify our losses?
income, other than by being involved in our own businesses, is by saving and investing our
earnings. But as I’ll describe below, markets will be volatile at best and destructive at worst.
So how do we stay in the market yet avoid negative outcomes? How do we use “MPT 2.0”
to diversify among asset classes and smooth out long-term returns in our portfolios when, if
I am right, all that diversification may simply diversify our losses?
That is what I have been deeply wrestling with for the last four years. I can see this train
coming, and I want to get on it, not be run over by it. I am afraid most people will be run
over it before they eventually climb on board, but with their assets much reduced. They will
suffer this fate because they believe the future will play out like the past.
coming, and I want to get on it, not be run over by it. I am afraid most people will be run
over it before they eventually climb on board, but with their assets much reduced. They will
suffer this fate because they believe the future will play out like the past.
We need, instead, to restructure our portfolios to make sure we get as much of our wealth
as we possibly can to the “other side” of the coming crisis, because afterward, I believe, we will see the greatest bull market of our lives. We just have to get there with our assets intact.
as we possibly can to the “other side” of the coming crisis, because afterward, I believe, we will see the greatest bull market of our lives. We just have to get there with our assets intact.
Let me offer the usual caveat/warning: This is my personal opinion based on my own analysis. There is no guarantee that I’m right. We are talking about an unknowable future. Many knowledgeable investment professionals will strongly disagree with me.
That said, you and I have to decide how we will approach that future. These are my thoughts, so let’s dive in.
We are coming to a period I call the Great Reset. As it hits, we will have to deal, one way
or another, with the largest twin bubbles in the history of the world: global debt, especially
government debt, and the even larger bubble of government promises. We are talking about
debt and unfunded promises to the tune of multiple hundreds of trillions of dollars – vastly
larger than global GDP. We are also going to have to restructure our economies and in
particular how we approach employment because of the massive technological
transformation that is taking place. But let’s keep the focus for now on global debt and
government promises.
or another, with the largest twin bubbles in the history of the world: global debt, especially
government debt, and the even larger bubble of government promises. We are talking about
debt and unfunded promises to the tune of multiple hundreds of trillions of dollars – vastly
larger than global GDP. We are also going to have to restructure our economies and in
particular how we approach employment because of the massive technological
transformation that is taking place. But let’s keep the focus for now on global debt and
government promises.
All that debt cannot be repaid under current arrangements, nor can those promises
ultimately be kept. There is simply not enough money and not enough growth, and these
bubbles are continuing to grow. At some point, we’re going to have to deal with these issues
and restructure everything.
ultimately be kept. There is simply not enough money and not enough growth, and these
bubbles are continuing to grow. At some point, we’re going to have to deal with these issues
and restructure everything.
Now, people have been saying that for years. Remember Ross Perot and his charts in the
early 1990s? We’ve all heard the doom and gloom predictions of the demise of civilization
that will be brought on by our Social Security and/or healthcare and/or pension problems.
early 1990s? We’ve all heard the doom and gloom predictions of the demise of civilization
that will be brought on by our Social Security and/or healthcare and/or pension problems.
And yet, these are real problems we must face. Facing them won’t be the end of the world,
but it will mean we must forge a different social contract and make changes to taxes and the
economy. That said, the day of reckoning is not here yet. We have time to adjust and
prepare. But I believe that within the next 5–10 years we have to confront the ending of the
debt and government promises supercycle that has been developing since the late 1930s.
This is a global problem, but it will be felt most acutely in the developed world and China.
The developing and frontier markets will be radically affected as well, but mostly by fallout
from the impacts on the developed world.
but it will mean we must forge a different social contract and make changes to taxes and the
economy. That said, the day of reckoning is not here yet. We have time to adjust and
prepare. But I believe that within the next 5–10 years we have to confront the ending of the
debt and government promises supercycle that has been developing since the late 1930s.
This is a global problem, but it will be felt most acutely in the developed world and China.
The developing and frontier markets will be radically affected as well, but mostly by fallout
from the impacts on the developed world.
There has been no instance in history when too much debt didn’t eventually have to be dealt
with. The even more massive bubble of government promises will have to be dealt with, too.
We need some realistic way to decide how to meet those promises, or at least the portion
of them that can be met.
with. The even more massive bubble of government promises will have to be dealt with, too.
We need some realistic way to decide how to meet those promises, or at least the portion
of them that can be met.
For the record, what I mean by government promises are pensions and healthcare benefits
in all their myriad varieties. Governments everywhere guaranteed these benefits assuming
that taxes would cover their immediate costs and future politicians would figure out the rest.
Now the time is rapidly approaching when those “future politicians” are the ones we elect in
the here and now.
in all their myriad varieties. Governments everywhere guaranteed these benefits assuming
that taxes would cover their immediate costs and future politicians would figure out the rest.
Now the time is rapidly approaching when those “future politicians” are the ones we elect in
the here and now.
Typically, after a significant recession there is a deleveraging of society. That’s certainly
what many expected in 2009. Individuals in some countries did in fact reduce their debts,
but not governments and corporations, or most individuals outside the US.
what many expected in 2009. Individuals in some countries did in fact reduce their debts,
but not governments and corporations, or most individuals outside the US.
That the world is awash in debt is not exactly news. As of 2014, total global debt had risen
to $199 trillion, growing some $57 trillion in just the previous seven years, about $8 trillion a
year. The McKinsey Institute chart below shows 22 advanced and 25 developing countries
that make up the bulk of the world economy. The chart illustrates how the debt is split
among household, corporate, government, and financial sectors:
to $199 trillion, growing some $57 trillion in just the previous seven years, about $8 trillion a
year. The McKinsey Institute chart below shows 22 advanced and 25 developing countries
that make up the bulk of the world economy. The chart illustrates how the debt is split
among household, corporate, government, and financial sectors:
The debt-to-GDP ratio increased in all advanced economies from 2007 through 2014, and
the trend is continuing. Here’s a chart for the advanced and developing economies:
the trend is continuing. Here’s a chart for the advanced and developing economies:
Since that 2014 report was published, global debt rose by $17 trillion through 3Q 2016. In
fact, in the first nine months of 2016 global debt rose $11 trillion! After averaging a little over
$8 trillion from 2007 through 2014, global debt growth is now accelerating. Global debt-to-
GDP is now 325%, though it varies sharply by region and country.
fact, in the first nine months of 2016 global debt rose $11 trillion! After averaging a little over
$8 trillion from 2007 through 2014, global debt growth is now accelerating. Global debt-to-
GDP is now 325%, though it varies sharply by region and country.
More worrisome is that interest rates are slowly rising pretty much everywhere, so debt-
servicing costs are rising, too. In the US, according to a note sent to me recently by my
friend Terry Savage,
servicing costs are rising, too. In the US, according to a note sent to me recently by my
friend Terry Savage,
Interest on the national debt is the third largest component of our annual Federal
budget – after social programs and military spending. In the most recent fiscal year,
we paid $240 billion in interest on the national debt. That was a relatively low cost,
because the Fed has kept interest rates artificially low for years – as savers can attest.
budget – after social programs and military spending. In the most recent fiscal year,
we paid $240 billion in interest on the national debt. That was a relatively low cost,
because the Fed has kept interest rates artificially low for years – as savers can attest.
Now, with the Fed hiking rates, interest costs are set to soar. The Congressional
Budget Office estimates that every percentage point hike in rates will cost $1.6 trillion
over the next ten years! And that’s without adding to the debt itself every year, by
running budget deficits.
Budget Office estimates that every percentage point hike in rates will cost $1.6 trillion
over the next ten years! And that’s without adding to the debt itself every year, by
running budget deficits.
That 1% rate hike will take roughly an additional 3% of our current tax revenues every year.
Governments must cover higher interest costs with additional taxes, lower spending, or an
increase in the deficit (which means more total debt and even more interest rate cost). Of
course, higher interest rates affect more than just government interest rates. Many of us
have adjustable-rate mortgages and other loans with floating interest rates.
Governments must cover higher interest costs with additional taxes, lower spending, or an
increase in the deficit (which means more total debt and even more interest rate cost). Of
course, higher interest rates affect more than just government interest rates. Many of us
have adjustable-rate mortgages and other loans with floating interest rates.
It is not just the US that faces a serious debt problem. Global GDP is roughly $80 trillion. If
interest rates were to rise just 1% on our global debt, an additional $2 trillion of that GDP
would go to pay that debt increase, or about 1.5% of global GDP. As we have discussed
many times, debt is a limiting factor on future growth. Debt is future consumption brought
forward. Repaying that debt requires either reduced future consumption or some kind of
debt liquidation – those are the only choices.
interest rates were to rise just 1% on our global debt, an additional $2 trillion of that GDP
would go to pay that debt increase, or about 1.5% of global GDP. As we have discussed
many times, debt is a limiting factor on future growth. Debt is future consumption brought
forward. Repaying that debt requires either reduced future consumption or some kind of
debt liquidation – those are the only choices.
Debt has additional consequences. I have highlighted research from my friends Lacy Hunt
and Van Hoisington that correlates increased total debt with slower overall growth. The
graph below from Hoisington Investment Management shows total debt as a percentage of
GDP for the major developed countries.
and Van Hoisington that correlates increased total debt with slower overall growth. The
graph below from Hoisington Investment Management shows total debt as a percentage of
GDP for the major developed countries.
Note that Japan, with by far the highest debt-to-GDP ratio, is growing slower than Europe,
which is growing slower than the US. China’s debt is rapidly overtaking the US’s debt, and
at its current growth rate it will soon overtake Europe’s. The grand Chinese debt experiment
will eventually reveal the true linkage between the size of debt and growth.
which is growing slower than the US. China’s debt is rapidly overtaking the US’s debt, and
at its current growth rate it will soon overtake Europe’s. The grand Chinese debt experiment
will eventually reveal the true linkage between the size of debt and growth.
A Citibank report shows that the OECD countries face $78 trillion in unfunded pension
liabilities. That is at least 50% more than their total GDP. Pension obligations are growing
faster than GDP in most of those countries, if not all. Those are obligations on top of their
total debt.
liabilities. That is at least 50% more than their total GDP. Pension obligations are growing
faster than GDP in most of those countries, if not all. Those are obligations on top of their
total debt.
By the way, most of those pension obligations are theoretically funded from future returns,
which are going to be sparse to nonexistent. That means obligations are compounding
significantly faster than the ability to pay them. Without serious adjustments to either
benefits or funding, there is literally no hope of catching up.
which are going to be sparse to nonexistent. That means obligations are compounding
significantly faster than the ability to pay them. Without serious adjustments to either
benefits or funding, there is literally no hope of catching up.
Thought exercise: In European countries where taxes are already more than 50% of GDP,
where will they find an extra 5–10% to meet those future pension obligations? How long will
younger generations tolerate carrying older generations when the government is taking two
thirds of their paychecks? You can begin to see the scope of the problem.
where will they find an extra 5–10% to meet those future pension obligations? How long will
younger generations tolerate carrying older generations when the government is taking two
thirds of their paychecks? You can begin to see the scope of the problem.
Sometime this year, world public and private debt plus unfunded pensions will surpass $300
trillion – not counting the $100 trillion in US government unfunded liabilities. Oops.
trillion – not counting the $100 trillion in US government unfunded liabilities. Oops.
These obligations simply cannot be paid. A time is coming when the market and voters will
realize that these obligations cannot be met. Will voters decide to tax “the rich” more? Will
they increase their VAT rates and further slow growth? Will they reduce benefits? No matter
what they decide, hard choices will bring political turmoil, which will mean market turmoil.
realize that these obligations cannot be met. Will voters decide to tax “the rich” more? Will
they increase their VAT rates and further slow growth? Will they reduce benefits? No matter
what they decide, hard choices will bring political turmoil, which will mean market turmoil.
History shows it is more than likely that the US will have a recession in the next few years,
although one doesn’t appear to be on the near horizon. But when it does come, it will likely
blow the US government deficit up to $2 trillion a year. Obama took eight years to run up a
$10 trillion debt after the 2008 recession. It might take just five years after the next recession
to run up the next $10 trillion. Here is a chart my staff created in late 2016 using
Congressional Budget Office data, showing what will happen in the next recession if
revenues drop by the same percentage as they did in the last recession (without even
counting likely higher expenditures this time). And you can add the $1.3 trillion deficit in this
chart to the more than $500 billion in off-budget debt, plus higher interest rate expense as
interest rates rise.
although one doesn’t appear to be on the near horizon. But when it does come, it will likely
blow the US government deficit up to $2 trillion a year. Obama took eight years to run up a
$10 trillion debt after the 2008 recession. It might take just five years after the next recession
to run up the next $10 trillion. Here is a chart my staff created in late 2016 using
Congressional Budget Office data, showing what will happen in the next recession if
revenues drop by the same percentage as they did in the last recession (without even
counting likely higher expenditures this time). And you can add the $1.3 trillion deficit in this
chart to the more than $500 billion in off-budget debt, plus higher interest rate expense as
interest rates rise.
Whether the catalyst is a European recession that spills over into the US, or one triggered
by US monetary and fiscal mistakes, or a funding crisis in China, or an emerging-market
meltdown, the next recession will be just as global as the last one. And there will be more
build-up of debt and more political and economic chaos.
by US monetary and fiscal mistakes, or a funding crisis in China, or an emerging-market
meltdown, the next recession will be just as global as the last one. And there will be more
build-up of debt and more political and economic chaos.
President Trump is a fairly controversial figure, but I think most of us can agree that Trump
is going to make volatility great again. The Great Reset will bring an increase in volatility,
and the correlation among asset classes will once again approach 1.0, as it did during
2008–2009.
is going to make volatility great again. The Great Reset will bring an increase in volatility,
and the correlation among asset classes will once again approach 1.0, as it did during
2008–2009.
If I’m right about the growing debt burden, the recovery from the next recession may be
even slower than the last recovery has been – unless the recession is so deep that we have
a complete reset of all asset valuations. I don’t believe politicians and central banks will
allow that. They will print and try to hold on as long as possible, thwarting any normal
recovery, until markets force their hands.
even slower than the last recovery has been – unless the recession is so deep that we have
a complete reset of all asset valuations. I don’t believe politicians and central banks will
allow that. They will print and try to hold on as long as possible, thwarting any normal
recovery, until markets force their hands.
But then, I can think of at least three or four ways that politicians and central bankers
could react during the Great Reset, and each will bring a different type of volatility
and effects on valuations. Flexibility will be critical to successful investing in the
future.
could react during the Great Reset, and each will bring a different type of volatility
and effects on valuations. Flexibility will be critical to successful investing in the
future.
(Next week, in part two, we will deal with two other major problems in putting portfolios
together, but today’s letter is long enough. I will wrap up with just a few comments and an
offer.)
together, but today’s letter is long enough. I will wrap up with just a few comments and an
offer.)
So let’s sum up. In my opinion, the entire world is entering what I call the Great Reset, a
period of enormous and unpredictable volatility in all asset classes. I believe that diversifying
among asset classes will simply diversify your losses during the next global recession. And
yet, active management seemingly has not been the answer. So what do we do?
period of enormous and unpredictable volatility in all asset classes. I believe that diversifying
among asset classes will simply diversify your losses during the next global recession. And
yet, active management seemingly has not been the answer. So what do we do?
I think the answer lies in diversifying among noncorrelated trading strategies that can invest
in any asset class. For a reasonably sophisticated investment professional with sufficiently
high assets, there are any number of ways to diversify trading strategies.
in any asset class. For a reasonably sophisticated investment professional with sufficiently
high assets, there are any number of ways to diversify trading strategies.
Up to this point, I’ve talked philosophy rather than action. Now I will tell you how I intend to
diversify trading strategies and give you a link to the actual strategies and managers I will
be using. Some will not agree with the philosophy outlined above, some will think they can
do a better job themselves. However – putting on my entrepreneurial business hat – my
hope is that some of you will join me.
diversify trading strategies and give you a link to the actual strategies and managers I will
be using. Some will not agree with the philosophy outlined above, some will think they can
do a better job themselves. However – putting on my entrepreneurial business hat – my
hope is that some of you will join me.
Back in the day, I allocated money to asset managers who traded mutual funds and did so
successfully. Unfortunately, the rules changed to make active trading of mutual funds difficult,
which significantly reduced return streams. But the growth of money in exchange-traded
funds (ETFs) changed things again. Globally, there is now about $4 trillion in ETFs. There
are almost 2000 ETFs in the US alone, and according to ETFGI there are 4,874 ETFs
globally, with assets skyrocketing from $807 billion in 2007 to $4 trillion today.
You know how somebody will talk about getting a time-consuming task done and then the
next person says, “There’s an app for that”? No matter what asset you want, there’s now an
ETF for that. I am constantly amazed how narrowly focused ETFs can be. There is now an
ETF that focuses its investments just on companies in the ETF industry. It’s not all large-
cap-index ETFs anymore. Some really small, niche-market ETFs have attracted significant
capital.
successfully. Unfortunately, the rules changed to make active trading of mutual funds difficult,
which significantly reduced return streams. But the growth of money in exchange-traded
funds (ETFs) changed things again. Globally, there is now about $4 trillion in ETFs. There
are almost 2000 ETFs in the US alone, and according to ETFGI there are 4,874 ETFs
globally, with assets skyrocketing from $807 billion in 2007 to $4 trillion today.
You know how somebody will talk about getting a time-consuming task done and then the
next person says, “There’s an app for that”? No matter what asset you want, there’s now an
ETF for that. I am constantly amazed how narrowly focused ETFs can be. There is now an
ETF that focuses its investments just on companies in the ETF industry. It’s not all large-
cap-index ETFs anymore. Some really small, niche-market ETFs have attracted significant
capital.
Not surprisingly, a growing number of asset managers actively trade ETFs using their own
proprietary systems. I began searching for the best of them some three years ago. I soon
realized, for reasons I will explain in a white paper, that a combination of several managers
is much better than just one. I have assembled a portfolio of four active ETF asset
managers/traders with radically different styles. That approach theoretically gives me the
potential for much less volatility than each manager’s system would face individually. The
combination I’ve put together has been less volatile historically than the markets, over a full
cycle.
proprietary systems. I began searching for the best of them some three years ago. I soon
realized, for reasons I will explain in a white paper, that a combination of several managers
is much better than just one. I have assembled a portfolio of four active ETF asset
managers/traders with radically different styles. That approach theoretically gives me the
potential for much less volatility than each manager’s system would face individually. The
combination I’ve put together has been less volatile historically than the markets, over a full
cycle.
Part of my edge is that I have been in the “manager of managers” business for more than
25 years, looking at hundreds of investment managers and strategies. That has actually
been my day job when I’m not writing. So when a manager explains his system to me, I
can “see” how it fits with those of other managers, understand whether it is truly different,
and finally, determine whether it would add any benefit to my total mix. I’ve also learned that
having more than the optimal number of managers doesn’t necessarily improve overall
performance, but it does add complexity and increase trading costs.
25 years, looking at hundreds of investment managers and strategies. That has actually
been my day job when I’m not writing. So when a manager explains his system to me, I
can “see” how it fits with those of other managers, understand whether it is truly different,
and finally, determine whether it would add any benefit to my total mix. I’ve also learned that
having more than the optimal number of managers doesn’t necessarily improve overall
performance, but it does add complexity and increase trading costs.
I believe passive investment strategies will come under severe pressure in the coming
years. Many investors have their “core” portfolios in these passive strategies. If you are
prepared to ride out another 2001–02 or 2008–09 and then go through what I think will be
an even longer and weaker recovery (until the debt issue is resolved), then stick with your
passive strategies. But if you’re looking for another option, let me offer you one.
years. Many investors have their “core” portfolios in these passive strategies. If you are
prepared to ride out another 2001–02 or 2008–09 and then go through what I think will be
an even longer and weaker recovery (until the debt issue is resolved), then stick with your
passive strategies. But if you’re looking for another option, let me offer you one.
My investment advisory firm is called Mauldin Solutions, LLC. I am calling the ETF trading
strategy I have developed the Mauldin Solutions Smart Core. I don’t think of it as an
alternative investment for a sliver of your total portfolio. Rather, I think it can become a
significant part of your core portfolio.
strategy I have developed the Mauldin Solutions Smart Core. I don’t think of it as an
alternative investment for a sliver of your total portfolio. Rather, I think it can become a
significant part of your core portfolio.
Now, what the size of your core portfolio should be depends on many factors. That is
something you should discuss with your investment advisor or counselors. (I think most
investors should have an investment advisor and financial coach for tax strategies,
retirement planning, estate planning, budgeting, and more. I’m not looking to become your
financial advisor. I want to provide you and your advisor with an easily accessible strategy.)
something you should discuss with your investment advisor or counselors. (I think most
investors should have an investment advisor and financial coach for tax strategies,
retirement planning, estate planning, budgeting, and more. I’m not looking to become your
financial advisor. I want to provide you and your advisor with an easily accessible strategy.)
For regulatory reasons, I can’t go into too much more detail in this letter. If you would like to
know which managers I’ve chosen and what they do, go to www.mauldinsolutions.com and
read a summary and then a more detailed white paper.
know which managers I’ve chosen and what they do, go to www.mauldinsolutions.com and
read a summary and then a more detailed white paper.
Mauldin Smart Core is now available on a growing number of platforms where we trade
directly for larger investors and brokers and advisers. We also have a mutual fund that I will
tell you about in the free white paper that is available now on most of the popular platforms.
directly for larger investors and brokers and advisers. We also have a mutual fund that I will
tell you about in the free white paper that is available now on most of the popular platforms.
I have assembled a professional team to help you get your questions answered. We are
especially looking for investment advisors and brokers. While we are just in the US at this
moment, we will soon be available in most parts of the world. I am amazed at how
technology allows us to do that today.
especially looking for investment advisors and brokers. While we are just in the US at this
moment, we will soon be available in most parts of the world. I am amazed at how
technology allows us to do that today.
For those of you in Europe, creating a UCITS around this product is fairly simple, and we
intend to do that. If you are in a country other than the US, then come to the website, give us
your name and email address. If you are an investment firm that would like to partner with us,
make sure that you put that in the note, and somebody from my Mauldin Solutions team will
get back to you. If you are an institution, pension fund, insurance company, bank or family
office, you have your own special place to register on the website. With the team and partner
companies I’ve assembled, I can structure almost anything you might want to satisfy your
needs. The white papers will discuss fees and what you need to do to compare this strategy
with those of other active managers. They will also show you how Mauldin Smart Core can fit
into your own personal strategy.
intend to do that. If you are in a country other than the US, then come to the website, give us
your name and email address. If you are an investment firm that would like to partner with us,
make sure that you put that in the note, and somebody from my Mauldin Solutions team will
get back to you. If you are an institution, pension fund, insurance company, bank or family
office, you have your own special place to register on the website. With the team and partner
companies I’ve assembled, I can structure almost anything you might want to satisfy your
needs. The white papers will discuss fees and what you need to do to compare this strategy
with those of other active managers. They will also show you how Mauldin Smart Core can fit
into your own personal strategy.
When you go to the Mauldin Solutions website, the rules require me to gather your name and
a little bit of information about you. If you would like, we can send you free regular updates from
Mauldin Solutions so that you can follow our work as we continue to parse this remarkable
economy. Mauldin Solutions will also issue regular portfolio strategy letters, along with the
letters of my partners/strategists. And we can keep you updated on additional offerings and
portfolio strategies that I think will enhance your portfolio opportunities if you sign up through
the Mauldin Solutions website.
a little bit of information about you. If you would like, we can send you free regular updates from
Mauldin Solutions so that you can follow our work as we continue to parse this remarkable
economy. Mauldin Solutions will also issue regular portfolio strategy letters, along with the
letters of my partners/strategists. And we can keep you updated on additional offerings and
portfolio strategies that I think will enhance your portfolio opportunities if you sign up through
the Mauldin Solutions website.
Click on this link to let me show you what Mauldin Solutions can do for you.
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