Say goodbye to GDP growth of over 2% and say goodbye to inflation over 2 % too. The world is changing rapidly, for good or bad, (I'll let you decide which one.) The last 100 years we have seen our standard of living increase tremendously and the western economies have risen along with it.
But it's all coming to a change now, for a couple of fundamental differences.
First one is…. Oil.
100 years ago we had barely started to take advantage of the black gold found under to ground in some lucky parts of the world. Oil is unique in its ability to contain enormous amounts of energy in relation to its weight and to be easily converted into energy we can use. During these years we have learned to harness the power of Oil and nowadays it is everywhere in the modern world. Even though you don't think about it, oil is fundamental in many, many products, not just Gasoline.
Oil has been a huge boost to world GDP growth, a source of energy we are unlikely to find again.
Democracy has spread out virtually all over the world during the last 100 years. It has brought wealth and freedom, America has been the country of awe and the winning formula has been adopted almost everywhere (except for a few countries). Democracy brings a happier and more productive population, it may have its flaws, but it's the best system known to man.
Democracy and Capitalism go hand in hand, and with the American dream now spreading across the globe, more and more people are trying to become rich. Many have succeeded more have failed, but those who succeeded have brought enormous benefit to the society.
Today you can start a company in North America, with the design division in Europe, that manufactures its product in China, who import the raw material from Australia, with the support in India, who sells its product all over the world. Talk about Globalization. It has enabled poor countries to catch up, by receiving cash investments and providing cheap labor.
There can't be a second Globalization because it has already been done.
Fifth…. Last but not least, Credit Expansion.
Never before have there been more credit in the world, and it keeps expanding at an exponential rate. Just look at the gold price, gold still got the same value as it did 100 years ago, but now you need to pay many times more for the same amount. That is because the money available is now multiple times more. Banking has been feeding the financial system with cash, or should I say virtual cash. But that is for another post.
That's why folks, we will never see significant GDP growth or inflation ever again.
Companies that rely or follow GDP growth closely like banks, may not have above average return in the future. Credit expansion cannot continue like this forever.
That's why I´m considering shorting high leveraged banks.
Interest rates can´t go lower, short-medium term bonds will therefore loose their value since investors can find higher yielding bonds.
Be careful around bonds.
Apologies for any grammatical mistakes, English is not my native language.