In this episode of Brokonomics, I give an update on where we are in the market cycle and why it hasn't been as exciting as I expected it to be. I talk about Bitcoin and inflation, and why I think it's not as bad as I thought it would be.
00:00:29.680Now in this episode I thought I'd better give a bit of an update of where we are with the market stuff because of course, well as you know in the first episode of Brokonomics I laid out the whole thesis and then I kind of did the whole tools to understand the thesis and then I sort of laid out what I expect to happen with the cycle and there was also that period probably about two years ago now, remarkable how long I've been here.
00:00:57.420I suppose time flies doesn't it? Well I was absolutely begging the audience to buy Bitcoin because it was down at sort of 16,000 per coin and it just seemed like the biggest gift that I'd ever seen in investing and sort of wanted to share that.
00:01:16.420Then we did a few more videos about how I expected the market to play out and then nothing really happened.
00:01:24.840So I started talking about other things that seemed interesting or relevant or, you know, otherwise worthwhile.
00:01:34.180And I'm sort of aware that it's been a while since we've done a market update and, well, the last I told you about my sort of expectations on the cycle, it would have been about now that we'd be hitting the market peak and that hasn't happened.
00:01:51.200It's just been all terribly boring. Nothing particularly exciting has happened. I mean, yes, it's gone up, you know, Bitcoin's gone up from 16,000 to, you know, over 100 today.
00:02:04.140So, I mean, that's all very nice and everything. And if this was normal investing world, I mean, if this was, you know, me back in the day working in the city, getting a return like that would be, you know, a cause for rampant celebration.
00:02:17.620It would have been an out, truly, truly outstanding result. However, we're not in the world of sensible anymore.
00:02:26.960We're in the world of let's just print money and, you know, take on debt and print more money and more. You get the idea.
00:02:34.280And you kind of expect it to be perhaps a little bit more exciting, a bit more like previous cycles.
00:02:41.020And given that I said that about now should be the peak in the cycle, what on earth is going on?
00:02:47.260You know, does this mean that my theory has failed or is it just delayed?
00:02:53.640And what's actually happened with everything?
00:02:57.000And, you know, basically the short summary of this is, and to be fair, I probably should have spotted this earlier.
00:03:04.580It didn't fail. It just got delayed. And what happened, I'm now pretty comfortable with, is that the COVID era just kind of extended everything.
00:03:15.240Because it, I mean, they printed so much during that period, they kind of glutted themselves and were able to, you remember the theory,
00:03:27.080they load up on debt when it's cheap. They force liquidity into this system so that they can buy up a whole load of cheap debt.
00:03:35.740And that sort of gluts them for a while. And then they set the maturity for a while down the road.
00:03:41.140Then inflation starts to come barreling up behind them like a, you know, out of control train.
00:03:46.600And it's like, OK, well, now we've overdone it on the money printing.
00:03:50.280So we're going to have to really tap liquidity down in order to, you know, stamp on that inflation that's coming this way,
00:03:56.880because otherwise people might get pay rises and we can't possibly allow that.
00:04:00.420So, you know, that all gets stamped on. And then they kind of, you know, taper that off over a period of a few years.
00:04:07.220And then, of course, they've got to roll over all this debt. And they do this on a roughly four-year cycle.
00:04:11.700And then they throw liquidity into the system again, roll over the debt, then stamp on it and so on.
00:06:47.800What does debt maturity actually look like?
00:06:53.600Well, most of the U.S. governments and British governments, I mean, they're all colluding, these central banks, but most of their short term debt isn't actually due yet.
00:07:03.560And there is a huge bulge of bonds that are going to be maturing in, you know, the next couple of years.
00:07:12.780And if you were to look at a graph of debt maturity, you'd see that bulge out ahead of us.
00:07:17.500I mean, there's already some triggering now and they are easing liquidity to an extent now.
00:07:23.840But it's just got a bit longer to run.
00:07:28.000And then if you were to look at the chart of the debt maturities, you'd see that over the next 18 months or so, these were in two years, really.
00:07:34.820All these bonds maturing, they need to roll over.
00:07:38.300And then you just see a long, quiet stretch.
00:07:40.860So it looks very much like that whole liquidity cycle thing is still in play.
00:07:48.800I mean, put it this way, global debt jumped to 30 trillion over the COVID era, which is, you know, it was the fastest increase in debt ever in history.
00:08:08.940And, you know, we got to a situation now where the U.S. interest expenditure is about a trillion a year.
00:08:19.480I mean, it's not far off that at the moment.
00:08:22.220So there is no doubt, in my mind, that they're going to need to pump a whole load of liquidity in the system in order to roll over that debt.
00:08:32.280Because, well, I mean, they're not going to do it through tax rises or spending cuts.
00:08:37.780So it is going to be debt and it is going to be rolled over because, you know, otherwise they undermine their whole entire financial system.
00:08:46.340And, I mean, those COVID fiscal programs that they did, not the monetary ones, but the fiscal ones, so, you know, the tax and spend ones, I mean, they equaled about a quarter of global GDP fired out over that period.
00:09:02.720I mean, they kind of basically put a decade's worth of stimulus into a two-year period.
00:09:10.500So, you know, I mean, obviously they did not fix the system.
00:09:15.560What they did is they bought themselves time.
00:09:18.520And, I mean, to my mind, what they did is they kind of engineered tomorrow's debt crisis with yesterday's free money.
00:09:33.280And COVID just allowed them to kick it a bit harder down the road and making the eventual problem that they will have bigger.
00:09:44.520But, you know, whatever, that's the future.
00:09:47.680They live for today, these central banks.
00:09:51.080So, I think the liquidity model still holds.
00:09:54.340It's just been, you know, pushed back.
00:09:57.040And that's why the market feels weirdly flat and unexciting by modern standards, I should say.
00:10:04.920I mean, bear in mind, you know, if we were to go back 20 years and you were to see returns like we've already seen, like I say, it would be, I mean, you would be lauded as, you know, high genius for the type of returns that you got.
00:10:19.880If you didn't buy, do you buy Bitcoin back at 16 grand and, you know, we're now, you know, over 100.
00:10:26.760But today that's all a bit pedestrian, isn't it?
00:10:30.040We're looking for a bit more excitement.
00:10:33.940So, you know, liquidity has been delayed.
00:10:44.120And growth isn't collapsing, but it's not wildly taking off either.
00:10:47.860And we're kind of in this sort of, I mean, I won't go so far as to say liquidity drought phase, but we're in the awkward middle where the taps are only just starting to, you know, drip.
00:11:04.880They're a bit stiff, they're being turned, but everything is a bit, yes, it's just not as exciting as perhaps you might have been expecting if you were watching Brokernomics a year ago when we sort of laid out really a lot of this whole liquidity cycle stuff.
00:11:21.300So stocks keep grinding higher, but nobody trusts it that much.
00:11:26.500And there's all this talk about, oh, is it a bubble?
00:11:48.240Yet productivity, new business growth, that's kind of soft.
00:11:51.880So, you know, the whole economic picture is just very, very middling, very, very, you know.
00:12:00.200And actually, right, if we were back in a normal world, a world that wasn't so completely consumed by debt, where we are now would just be fine.
00:12:55.900It normally rises and falls in sync with the total liquidity available in the market, which means, you know, central bank balance sheets, bank reserves, money supply.
00:13:11.520You can get liquidity injected by the private sector as well, although that's not happening at the time.
00:13:16.060Now, over the past year, this liquidity level has been basically flat, maybe rising a bit, but only a bit.