Would it be good to know what’s going to happen in the future? Planning for retirement and investments would be easier if you could see the future. Being editor of Let’sCompareBets.com I am constantly looking at ways to take a bet on the future. Not an easy task by any means, because, that’s a bet you don’t want to lose. Especially if you are investing for retirement or family.
What to do? Long story short, with no employer pension and no prospect of having an employer to pay into a pension, who’s going to save me from this quandary? That’s that’s right no one! WAIT, no sorry, ME. Of course there’s financial advisers and other industry professionals, but by comparing bets, we surely stand a chance of winning more wealth.
Readers may want to use this post to frame thoughts about how to plan for a financial future-self. What does the future look like? Comfortable retirement, new house, it’s all in the realms of possibility.
Out of a fear of being on the wrong side of financial markets a question preoccupying my mind has been when will the next financial crisis hit, what is going to happen and what it means for the future. Many other people are asking similar questions.
Cutting to the chase, YES, another crisis is going to happen. Possibly in the next 24 months. But, why, how, and for how long.
To answer this question, readers may want to ask how deep does the rabbit hole go? After a bit of digging about this subject, the answer is unsurprisingly really deep. A better question is, if I where a rabbit, how deep would I want to scurry into the rabbit hole? Bearing in mind, ‘going all in’ with managing personal finances is a big bet (if you think about it): so it’s not going to be something you can scribble on the back of an envelope (except possibly the following words, dollar hegemony, shibboleth, self fulfilling prophecy, financial institution, cooperation, and gold). Read on to find out what the hell we’re talking about.
In the words of Deutsche Bank emanating from their annual long-term asset return study “ we’re quite confident that there will be another financial crisis/shock pretty soon”. For the purposes of this post we’re going to roll with Deutsche Bank’s definition of crisis (all from October 2017 prices); a 15% drop in the equity market (or more), a 10% fall in government bonds, or double digit inflation”. Interesting, there no mention of deflation in this definition. Deflation is definitely a bogey man for mainstream economists and politicians. Deflation would be bad for Wall Street, The Square Mile and main street (the man on the street).
Having started in 2009 the current economic expansion (although it may not feel like that for some people) is the second longest period of expansion since WW2. May 2018 marks the date making it the longest period of economic expansion in recent times. Taking a simple look at previous cycles a crisis will probably be caused by a recession or abrupt slow down in economic activity. How is it going to play out?
To answer this question without help, as a layman, would be like pissing in the wind. Let’s face it, what do I, you, we, know about economics, and how is it going to be possible to predict what hasn’t happened yet? Understanding economics in a bit more detail is an essential ingredient of tackling this question.
We have assembled a team of experts to help in our quest. This post will focus on the macro economic view point and suggest ways to place financial bets moving forward. Reader’s will notice a big slant towards what’s going on in the USA. The USA is the global command economy and what happens there will ripple across the pond (both ponds). To take teaching from the Sage of Omaha (Warren Buffet CEO and Chairman of Berkshire Hathaway) “ don’t bet against America”. Wise words.
Who is going to help us see the wood for the trees?
Our A-team consists of two economists, a hedge fund manager, a lawyer, a historian and a physicist. All are commentators about current affairs and what’s happened in the past. An almost random selection of people to answer the question. You may have guessed it, this post is not going to be a short one, be prepared. Here’s our list of experts, not all to be used in the post directly but have been indispensable sources of information.
After stumbling upon a book called ‘The Accidental Theorist and other dispatches from the dismal science’, the Author Paul Krugman, is going to be the first economist to help. Krugman’s book is well written with short essays and witty criticism of other economic ideas. I also digested this book quickly as it’s easy to read and light on complex theory, equations and the like. Mr Krugman is a American economist (Professor of economics at Princeton University USA and a Nobel Prize winner). Published in 1999 during the Clinton administration (you know, I did not have sexual relations with that women!, and generally well received welfare reforms and economic policy), it is great because his criticisms of other economic ideas can be assessed using the test of time. Krugman specialises in recessions making him perfectly positioned to help.
Steve Keen is an Australian professor of economics and head of School of Economics, Politics and History at Kingston University London. Contributing to the subject by studying instability in financial markets. Influenced by Hyman Minsky (and others) he’s built mathematical models that help predict the future. Being a straight talker he’s unlikely to win the Nobel Prize, in my view making him a perfect fit for this task. His material includes books, and Youtube content – which is more detailed than output from Mr Krugman, which is more marketed towards the mainstream.
The hedge fund manager
Ray Dalio, billionaire hedge fund manager of Bridgewater Associates. Having built up the worlds largest hedge fund Mr Dalio has taken a more public profile, is writing books and doing interviews. Hedge funds have been a source of economic crisis in the past making Dalio a good selection. During the economic crisis of 2008 he made a group of wealthy people even more rich so he is popular with his clients amoung other people. As rich as Mr Dalio is, his books and commentary have not been produced out of necessity but from generosity, so he’s making the cut for our A-Team of advisers. His views are mainstream. His hedge fund is so big that it takes a command position in the markets and may also be contribute to future instability. Cynics may mumble that a multi billionaire hedge fund manager writing a book is a sure fire contrarian indicator suggesting something is about to change.
Great economists of yesteryear have described the economy has being a delicate machine, which is perhaps by Mr Dalio has released a video called “How the economic machine works”, which has helped me with a general understanding of economy. It’s simple but doesn’t make you feel like a simpleton, so it’s worth 30 minutes of your time. Here is the link. Bridgewater associates have made it available in multiple languages, they’re clever guys at Bridgewater Associates.
James Richards was the lead lawyer for the bailout of Long Term Capital Management, which collapsed in 1998, and has given advice to US Government agencies. Mr Richards made the New York Bestseller list on a number of occasions. His geo-political insights make him stand out from the crowd as does his apocalyptic narrative of current economic affairs. He has said the US Federal Reserve is involved in what he calls “the greatest gamble in the history of finance”, making him a perfect source of information for LetsCompareBets.com. Apparently Ray Dalio makes his trainees read Richards’ book, Currency Wars, when they start working for him. Richards is a good communicator and helps make complex geo-politcal interactions comprehensible for the uninitiated. One of his projects it to tinker with a predictive analytical systems that use techniques and methodology not used by the big banks.
Mary Beard professor of classics at the University of Cambridge, UK. Beard has written a number of books and presented history programmes on the UK’s BBC and brings us a classical historian’s view point. Her book SPQR A History of Ancient Rome provided me with a number of light bulb moments regarding elitism, taxing the rich and the formation of institutions at grass roots level. SPQR is the Romans’ own abbreviation for their state: Senatus Populus Que Romanus, ‘the Senate and People of Rome’. This book gets into nitty-gritty of early Roman Empire and readers will get a proper understanding of how historians ply their trade. An understanding of the rise and fall of empire will help with answering our question, if only to discount the chance of a catastrophic bear market. There is no better place to look than Ancient Rome.
Michio Kaku is a Japanese American theoretical physicist and professor of theoretical physics at City College of New York. Physics and especially theoretical physics is a good base to help answer this question of what the future holds, because, theoretical physicists are trying to work out how everything works. If you really want to see the wood for the trees, then check out Mr Kaku’s futurologist views in this video. In Mr Kaku’s view we are a multicultural, scientific and cultural society moving into a type 1 economy (among other things).