Two Years Later
Is History Rhyming?
The inaugural Be Prepared blog in July 2024 set out a thesis that a storm was coming for our personal finances. That certainly hasn’t happened yet, when considering the stock market has delivered our readers 20% returns in each of the past two years. It would be easy to assume, based on the market’s last two years, that authors Dalio, Howe and Alden who anchored that inaugural History Rhymes blog must have got it all wrong.
Maybe we should review the timelines and see if the rhyme should have peaked or be complete by now:
· Dalio – has the most short-term perspective of our reference authors. He currently believes the (governments) debt cycle may find its bottom within only a couple years
· Howe – his social demographic view of the US has been substantially advanced by the re-election of Donald Trump (since the start of this blog). Yet he still believes the Fourth Turning is most likely to reach its conclusion in the early 2030’s, some five years away
· Alden – ongoing work continues to reference her belief that Nothing Stops this Train (of growing debt) anytime soon, and that the debt growth could realistically continue for a decade or more
The timelines all suggest that two years is not enough time to properly judge if a storm will or will not come for our personal finances, in the form of rhyming history.
What do the key indicators tell us about the likelihood of a financial storm:
· Debt – is certainly growing, both privately and at the government level. We’re all aware of how large new mortgages are compared to when we older folks bought our homes. And at the government level, debts are growing rapidly across most of the developed world, as we re-arm without any meaningful cuts.
· Inflation – remains stubborn, as it’s stuck above 2% in Canada and is hovering around 4% in the US. We also all know that groceries are much higher than 2% price growth year over year. Not to mention, we haven’t had any relief (deflation or lower prices) from the 6% to 8% inflation experienced in 2022. Cost of living has only continued to rise since then.
· Bonds – which constitute a third to half of most readers’ portfolios, have been stuck in neutral since the fall of 2022. While your stocks have delivered great returns, your bond funds have delivered an average return of zero for four years. Combined results make the last couple years look good, but not great.
· Stocks – continue to post all-time highs but are themselves a point of concern as covered in my Mean Reversion blog earlier this year. They are signaling it’s time for a correction to the downward side.
I continue to believe these and other authors and experts who see the writing on the wall for a storm to come to our personal finances. As a result, we have a large percent of our investments in a diverse range of real assets and asset producers. We also currently have a significant amount of cash built up from selling profitable market positions over the last year. This cash sits in funds delivering small inflation-like returns until lower purchase prices present themselves for real assets, asset producers, and blue-chip dividend paying stocks.
Don’t be blinded by the headline-producing wins in the general market. Consider the probability (or at least possibility) of a storm coming. Be Prepared.