4 scenarios to invest in a multipolar world
From central banks to creative destruction
Why the Asset Prices Roller Coaster is our Main Scenario
The pandemic excited natural feedback loops that exist inside the global supply chains. Central banks are amplifying the instability inherent in these systems.
But this is very good news. Schumpeter is back. The ideas of one of the greatest economists will prove right.
Creative Destruction (CD): some companies must die and new companies will rise.
This is one the most important forces for innovation, productivity and technological development. Very low interest rates make the big companies even larger and the economies of scale the most important competitive advantage.
Without (CD) there is no productivity and without productivity the economy is a zero sum game. There is not a win-win situation, there is a winner and many losers and in case of a war, we can end in a lose-lose situation.
The extreme events go in both directions, today we are looking at the panic but the same inherent instability will create euphoria that is totally underestimated.
TLT (US treasuries long term ETF ) is a way to play the disinflationary scenario.
The Nasdaq/M2 is at very interesting levels.
The Nasdaq (tech stocks) is a proxy to play that the FED would need to be less aggressive and maybe to change the narrative from monetary tightening to easing.
I like the Nasdaq/M2 ratio because it discounts the distortion of the monetary expansion. It is easy to see a bubble everywhere with the levels of monetary printing. However, if we discount this effect, prices look very different.
Bitcoin & Tesla are perhaps perhaps the best examples of creative destruction.
For the media Bitcoin has died 452 times, huge drawdowns, depuration of the entire crypto space, but still it survives. There is no central bank that will bailout bitcoin. Bitcoin was created in 2008 as a response to the moral hazard of the financial system.
The other beautiful example of creative destruction is Tesla. Its drawdowns show the path of a company with many failures but an incredible learning process.
Bitcoin and Tesla holders are used to the annoying level of volatility; the question is: are bond holders ready for this rollercoaster in world without a risk free asset?
Thanks for reading,
Guillermo Valencia A
Florianópolis Brazil
July 6th ,2022