The US Economy Is Much Worse Than We Thought
Who will be the next world hegemony
The 2008 crisis was one of the biggest crises ever experienced, but it wasn’t worse than the 1929 crisis, where the market fell by more than 80%, and most people lost any hope of prospering in their lifetime.
In 1929, it took more than 50 years for the market to recover from this crisis. After many years of poverty, suicides increased, and the financial sector's confidence broke down.
This recession fueled communist and anti-capitalist movements, and the lack of government authority fueled fascism and dictatorship in many parts of Europe.
This recession lasted until the outbreak of World War II. I think that if you have followed this newsletter, you know what could have been the trigger for the recession to last until just this moment…
The debt of the United States of America increased from 25% of GDP to more than 120%.
However, it took more than 50 years to see the stock market return to the values seen in 1929.
If there is one rule in the investment world, it is not to lose money. To recover -80%, it is necessary to make an x5...
In the case of 2008, the market barely needed five years to recover. In five years, much more money was printed (in absolute numbers) than from 1929 to 2008.
This unprecedented printing by the Fed has made any of the U.S. indices look like a good long-term investment idea. Anyone can tell you that over the last 100 years, the US index has averaged 7% per year. But this metric is not good, far from it, because when we talk about the change of hegemony of the world's great powers, it can last about 200 years.
The great reset
We have already talked about this event that Ray Dalio has predicted. The United States, after abandoning the gold standard in 1971, gave up the possibility of remaining the world's greatest power for the next 100 years.
Obviously, Nixon, at that time, did not have the slightest doubt. He knew that the next few years in which the Fed would have total control over the economy would be years of great prosperity, and so they have been.
Change of cycle
China is going to be the next world power. We do not doubt it, so start buying more ACWI, a global ETF with developed and undeveloped countries, ahead of the S&P 500.
Over the past 30 years, China has grown at a rate of about 8% per year in terms of GDP. In other words, it doubles in size every eight years.
That makes China the fastest growing economy in the world.