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My thoughts from the front line.

John Mauldin’s excellent “Thoughts from the Front Line” on saturday made compulsory reading.

The gist of it was that US debt is too great; it is increasing rapidly; there will be a reckoning.

This is a trend in no way helped by US Foreign and Home Policy being out of synch and neither being managed by the White House in harmony with both sides of the House and the FED. The US is suffering from a confused response to a dangrous and growing economic threat.

An example of the confusion: the trade wars are slowing already underperforming economies shackling their scope to trade out of peril. Accordingly our trade results are declining too.

Another example of the confusion: as more money is pushed into the system so investors are bidding up the price of quality assets and sramling for ludicrously high yields from questionable assets at the margin. IPO prices are effectively sand castles built on thin ice.

What does this mean for the individual investor? More than anything it demands you hold onto your day job – that is why employment inflation is running so low – we all know we are at risk, finding a replacement job is a real and present challenge we do not want to have to attempt. It also requires you stick to my puritanical rules (see Wealth Management Blog):

  • ONLY buy robust US centric stocks with a strong record and very strong immediate futures.
  • ONLY buy at PE levels below 40, below 20 is far better.
  • BUILD your gold portfolio to 25%.
  • AVOID all non profitable companies.
  • PRUNE profits and CUT losses at 10%.
  • The US economy is a balloon held up by the hot air of its reserve currency and fueled by its insatiable consumer. We will not be the first to crash. That is already happening in our own backyard in South America as they suffer from the commodity cut back after the 2008 crash and the current slowing global economies (see “No man is an Island” Blog 10/9/2019). Europe,  in particular the UK post brexit and the Southern states (Italy and Greece) are likely to be next in line. We will see the first sign of disaster here as our chronicaly underfunded pension programs stutter and fail. 

The US challenge over the next  2 years is to shift from its no longer relevant political structure, vision and personnel to allow it to focus all its intensity on preserving its reserve currency status, maintaining its economic core, and at the same time enabling and facilitating growth wherever it can throughout the world.

It is hard to see any sign of this at the moment. So things have to get a great deal worse before the instinct for survival will take over.

We are in for a very rocky time, James