Things Fall Apart (Part 2)
September 4, 2018·0 comments·markets
For a decade, every strategy that was supposed to work didn't. Diversification failed. Value failed. Trend failed. Everything underperformed one thing: the S&P 500. This wasn't supposed to happen, and the failure reveals something troubling about what's actually driving our markets and our wealth.
• The math worked for 46 years, then stopped working in 1997. From 1951 to 1997, household wealth grew in lockstep with the economy. Since then we've been richer than we grow, creating bubbles. That gap is the problem.
• Central banks stopped protecting markets and started using them as political tools. What began as emergency rescue after 2008 became permanent policy: buy ALL financial assets, inflate ALL prices, regardless of whether those assets deserve it.
• Wealth concentration exploded because of how those bubbles were distributed. Financial assets flow to the rich. Inflate stock and bond prices and the top 0.1% gets richer while the bottom 90% stagnates or falls behind.
• Young people were paid off with debt instead of wealth. Student loans and easy credit let younger Americans feel rich while actually becoming poorer. They're living in a collegiate bubble that's as artificial as anything in markets.
• Every major "asset class" you own is actually the same thing. Emerging Markets isn't separate. Real Assets isn't separate. They're all shadows of central bank policy. The diversification you thought protected you never actually existed.
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This commentary is being provided to you as general information only and should not be taken as investment advice. The opinions expressed in these materials represent the personal views of the author(s). It is not investment research or a research recommendation, as it does not constitute substantive research or analysis. Any action that you take as a result of information contained in this document is ultimately your responsibility. Epsilon Theory will not accept liability for any loss or damage, including without limitation to any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Consult your investment advisor before making any investment decisions. It must be noted, that no one can accurately predict the future of the market with certainty or guarantee future investment performance. Past performance is not a guarantee of future results.
Statements in this communication are forward-looking statements. The forward-looking statements and other views expressed herein are as of the date of this publication. Actual future results or occurrences may differ significantly from those anticipated in any forward-looking statements, and there is no guarantee that any predictions will come to pass. The views expressed herein are subject to change at any time, due to numerous market and other factors. Epsilon Theory disclaims any obligation to update publicly or revise any forward-looking statements or views expressed herein. This information is neither an offer to sell nor a solicitation of any offer to buy any securities. This commentary has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Epsilon Theory recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial advisor. The appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives.
