On the surface, 2024 will be dominated by interest rates and the Presidential election. But looming in the background will be the burgeoning global debt crisis that can’t be ignored much longer. With global debt growth accelerating, markets are rallying on expectations of lower interest rates, lower inflation, and strong economic growth, a jigsaw puzzle whose pieces fundamentally don’t fit together. Lower inflation and lower interest rates point to slowing economic growth and lower corporate profits which are inconsistent with forecasts for new stock market highs. But a foolish consistency is the hobgoblin of little minds in the ZIRP/QE era, and having crossed the Rubicon into that era, we can never cross back. Markets no longer move based on fundamental economic logic; they are driven by liquidity, flows, momentum and an extremely short-term oriented psychology. Maybe Wall Street will catch on and downsize or eliminate its research departments because individual stock research has never been less useful than today. Macro rules markets but not in the sense of traditional macroeconomics but the new macro-structure of markets.
This single-minded focus on rates leads investors to ignore the Brontosaurus in the room – the more than $300 trillion (and rising) of global debt not merely suppressing economic growth but posing a genuine existential threat to the global economy. That debt can never be repaid in constant dollars – it can only be addressed by defaults, inflation, and currency devaluation. The day of reckoning for this intensifying crisis is moving closer due to the exponential nature of debt. Investors who ignore this looming threat will suffer terrible consequences in the future; those who factor it into their investment decisions will better protect themselves and even prosper. But make no mistake about it – there is no way to avoid the debt crisis. Ignoring it is not an option and is the equivalent of financial suicide for anyone who sticks his or her head in the sand.
Crises by their very nature erupt at unexpected times. That is why you need to be prepared for them all the time – not to the extent of being too defensive but of organizing your investments and your life to be able to withstand shocks when they occur. High debt levels render the global system very fragile which means everyone should redouble their efforts to protect themselves from harm. With that warning, here are my forecasts for the next year.
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