The Financial crisis of 2008 was not such a big shock. It seemed that way, but it wasn’t even close to the scale of destruction of the 30s. That’s called progress – just like we have largely eliminated famine, or infant mortality, we, humans, shall not suffer again like our ancestors did in the 30s. No. And we have the perfect medicine – the printing press. Free money, you see, creates growth – or at least we think so. And for 20 years, it hasn’t created inflation, so it’s all good. The monetarists can go read up on MMT.
Now, thanks to Covid, and the enormous debt burdens taken on by govts of all sorts, it is very clear that rates can never go up again. If they did, countries would go bust under the debt burden unless … they just print more … And when they print a ton more, then rates will go back down again – exactly the opposite of what we used to think – thank you Japan for showing us how this worked.
With rates low forever, and free money forever, the ideal investment strategy is clearly equities – that can only but rise with cheap debt funding for corporates and cheap equity capital – equities all the way, especially new world stuff, tech, etc. If they went down hard, all that money would be used to buy equities and prop them up directly. Financial happiness for all. But the same thing that is good for equities makes most of Fixed Income very unattractive…
…unless you can buy quality assets, and lever them with bank debt (uneconomically cheap post GFC because banks can’t lend enough in short) like we do at 2bC. That way, aside from hi returns, we have structural leverage to rates via bank debt. When Fixed Income gets less attractive for the world, it gets more attractive for us.
Better to be lucky than smart. Sometimes it’s the same thing.