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1/ Fascinated by two recent podcast conversations and attempting to forge the main thrust of both arguments into a single coherent narrative.
2/ First @timfprice on @sotmpc recent exchange (#103) with @AkhilGPatel and secondly @ttmygh outstanding End Game #5 conversation with Russell Napier https://bit.ly/33pCJQw
@AkhilGPatel Thesis:
@AkhilGPatel Thesis:
3/ - economic - more precisely property market - cycles run in 18 year top-to-top waves;
- 2 x 7 year up waves followed by a sharp break and rebound phase over 4 years
- this 18-year cycle can be observed going back for 200 years;
- 2 x 7 year up waves followed by a sharp break and rebound phase over 4 years
- this 18-year cycle can be observed going back for 200 years;
4/ - between the two up legs of the cycle roughly in year 7, there is a break/pullback/pause followed by the final up leg. According to Akhil we are currently smack in the middle of the pause between the two seven cycles, the first of which started in 2012.
5/ Consequently, we have the last leg of the cycle to go probably until 2026/27 until this phase ends.
6/ Akhil also ties this into the longer-term Kondratieff wave theory (the one that put NK into a Siberian labour camp because Lenin didn't like his theory about capitalist cycles).
7/ Thus, according to Akhil we have a strong upswing ahead of us which is contrarianly at odds with the current depression mood of the entrail reading classes and the chart-busting stats that we can see on almost every economic graph of anything.
8/ Russel Napier's thesis is based on his conviction that we are at the start of long-term cyclical inflation wave, having been an early and staunch proponent of the deflationary cycle through which we have lived during the last two decades.
His analysis is based on two linked…
His analysis is based on two linked…
9/ …themes: 1) Governments will do whatever they can to reverse the debt-to-GDP burden (currently running at well over 100% in USA) and that inflation is the least noticeable way of achieving that outcome and 2) Governments have figured out a way to bypass the central banks…
10/ …and their inability to force money supply growth in the real economy by issuing bank credit guarantees and effectively mandating the commercial banks to increase lending to businesses and underwriting (and subsidising) the loans.
11/ Napier reckons the central banks have had their power seriously curtailed and that the resultant gush of money into the real economy will produce the long hoped for (by govs) surge in inflation.
12/ He posits that governments estimate they can keep real interest rates negative without letting the inflation engine tear out of control, pointing out caustically "good luck with that".
So conflating these two theories we are in for
So conflating these two theories we are in for
13/ i. a robust recovery within the next 12 months;
ii. a seven tear on the upside powered by a surge in money supply and price inflation driving nominal GDP growth;
iii.
ii. a seven tear on the upside powered by a surge in money supply and price inflation driving nominal GDP growth;
iii.
14/ a further increase in the value of real assets especially real-estate, stocks and businesses (especially businesses);
iv. a surge in all commodity prices (from multi-decade lows) as well as and especially
iv. a surge in all commodity prices (from multi-decade lows) as well as and especially
15/ v. in Gold and PMs and miners (subscribe to @ttmygh newsletter for a great take on the prospects for the miners);
16/ vi. a continuation - on steroids - of the trend of transferring of wealth from savers to debtors, as negative real interest rates and "macro-prudential regulations' force institutions to load up on gov. securities;
vi. a feeling of general prosperity and optimism as a) the…
vi. a feeling of general prosperity and optimism as a) the…
17/ …COVID episode recedes in popular memory and b) the benign effects of a resurgent inflation start to be felt (higher wages but still-low mortgage rates) until the economy overheats and inflations begins to canter out of control in the mid-late 20s.
18/ These two theses are eminently compatible. The everything bubble is now going to be joined by main street who is arriving late to the party. Nobody is pulling away the punch bowl, in fact it is going to be spiked with double rations.
19/ How this ends is anybody's guess, but for my money the party will start in earnest when we have all had enough of the virus, Mr. Trump is esconced for a second term and the music is played a little louder every hour.
20/ I will explore what I think that means for businesses in another post but for now my thanks to @sotmpc and @ttmgh for two cracking thought-provoking conversations and to @AkhilGPatel and Russell Napier for their wisdom. [written for Good & Prosper by @StevenKNWilkinson]
