Is a Financial Apocalypse on the Horizon?
4 books from over 10 years ago agree
This week, I received a question that I find quite interesting and want to share with you. The question was whether all the pessimism perceived in the world is true.
It is evident that we are living through one of the most turbulent periods of the last 100 years: the assassination attempt on the President of the United States, the fastest interest rate hike in recent history, and an inverted yield curve for many months. However, stock indices continue to hit record highs week after week, day after day.
Don't you think there is a disconnection between what is happening in the markets and what is occurring in the real economy? I firmly believe so, and this is typical of the end of a cycle. But I'm not talking about a small recession (10-20%), I'm talking about something much larger.
The American citizen (mainly) believes in individualism, believes their future will be prosperous, but does not believe in the future of the nation. This already happened before the crash of '29 and led to a society with completely different principles.
If we review history a bit, we see that the status quo does not exist, although it manifests in the way many people invest and act. Empires have always lasted around 100 years and many investors and economists corroborate this:
Ray Dalio, in his book "The New World Order," talks about how 100 years ago the world power was the UK, where stock market returns were very similar to those obtained in the US. Dalio argues that the next world power will be China (around 2025).
"The Sovereign Individual" discusses how states and governments weaken and how the fall of the nation-state gives way to a global and decentralized world.
Related to the fall of the nation-state, Taleb emphasizes the antifragility of large centralized structures and underlines that an antifragile country like Switzerland (with its canton system) will tend to endure much longer than any other.
"The Fourth Turning," an incredible book by Neil Howe, analyzes how the character of society is marked by the time you were born. Look at the following chart and tell me who you identify with.
Although we may not believe it, we live in an increasingly divided world. This is evident in Europe, for example, with cases like France or Italy, and very close to them, Spain. In Argentina, we have the liberal Milei. But the list does not end here; in fact, I think American leaders have a much more extremist mindset than we have ever seen before.
From our macroeconomic point of view, we are in the last years of this boom that has allowed anyone to benefit from the stock market, with housing prices at record highs and social inequality like never before.
It is a time to be well-diversified, avoid leverage (but not debt), and be as antifragile as possible against everything that comes. Meanwhile, we will continue to take advantage of all the opportunities the market and economic policies give us.
From here, we will continue to provide our macro vision, and as soon as we detect that any of the main indicators stops being bullish, we will let you know.
Now, as every Sunday, I will describe our portfolio in detail. As you can see, it is still close to its all-time high (ATH). The best part is how the drawdown has decreased considerably:
