Friday, December 9, 2022

The best way to prepare for a market crash

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Let’s have a look at this first…

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Between 1926 and 1929 (just before the stock market collapse),…

The debt-to-GDP ratio in the United States hit 125 percent, growth was at 3% (which was strong), and equities averaged 31% a year. All of this encouraged additional borrowing and aided in the growth of the economy.

Money and credit were restricted by policymakers at the time, which, along with bubble pressures, produced an unsustainable climate for equities to continue surging upward.

Despite the fact that the US needed to repay its debt (also known as deleverage), its debt-to-GDP ratio continued to rise due to deflation, interest payments financed by additional debt, and falling real earnings.

Here’s what we know about the current state of affairs. Take a peek at the balance sheet of the Federal Reserve…

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Yes, the Federal Reserve keeps buying bonds and printing money. Examine the government debt-to-GDP ratio…

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Now, I’m not suggesting that a crash is imminent, but being overextended in debt is unquestionably an issue for the United States. And we’ve seen the Fed do everything it takes to lift the US out of any economic slowdown from 2010 through 2021, including taking on more debt and printing more money.

One of the numerous reasons for this graph is what I just mentioned…

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This is why it’s critical to have a commodity portfolio…

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  1. Commodities are a good inflation hedge – consider how much money is being printed and how positive this is for commodities.
  2. They’re required by society – Whether it’s the lithium in your cell phone battery or the copper in your charging cord, most things you use are created from commodities.
  3. They’re important for political security – Because energy security equals political stability, especially as the world moves away from globalization.
  4. Commodity prices will rise when they do, not if they do – Consider all the infrastructure that will be built as a result of fiscal policies and the exponential rise in GDP per capita in India, Europe, and other countries.
  5. They’re a cyclical asset class that trades at a significant discount to the mean – Mean reversions happen in the market all the time, whether you like it or not, therefore the question is when, not if, commodities will rise.
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