Good day, fellow investors. Recently, Ray Dalio came out with an excellent article, really good for these times about money, credit, and debt. He shared his chapter from his new book, Coming Out in the Fall, but if we look into it, then we will see all the explanations we need to really understand what's going on in the economy and money and credit and financial assets. I'm first going to give you a quick summary of what Ray Dalio discusses, and then for those that want to dig deeper, we'll go into each part of it and try to explain it as good as we can. So let's start immediately with the summary. Currency will likely be devalued to service the huge debt piles coming. So we are in the late part of the debt cycle. We have a crisis and all governments are printing money and going into huge fiscal deficits to save the situation, to improve the situation as much as they can. This will lead to issues because at some point, somebody will get it that the money is worth less and less because there is more and more money being constantly printed. Thus, the bonds to, you lend to the government five years later, you get really much less value than what you put into, especially with 0.3 yearly, 0.3% yearly return. That's really insane and that's something people will understand one day. When that happens, nobody knows, not even Ray Dalio knows, but it is a risk that we have to keep in mind. Further money printing means that hard assets, financial assets are being inflated and that's what we are seeing also in the stock market. So the S&P 500 is at 2,836 points as I'm filming this. So it's where it was not even a year ago in August of 2019. Despite the fact that we are having one of the biggest economic crisis since the 1930s, the S&P 500 is where it was not even what, eight months ago. That is inflation in financial assets that we are already seeing due to the money printing. So that leads financial assets, those that have money become richer, the poorer stay poorer, depending on the value and that will lead to political economic issues. I'm very worried about Europe personally because it's not so synchronized as the United States and we will see how the fight and how the wealth gap will be closed and how it will be dealt with. But also in the United States, the top 10% have a huge part of the wealth, 85% of the wealth if not more and that will lead to political and economic issues. We are in the late part of the debt cycle, we'll explain in detail this cycle for those that are interested and then the solution, the end game is that it's likely, it has happened all the time in history, it's likely that there will be a return to hard currencies or linked to something of fixed value like gold because when people lose faith in currencies, that's usually how the cycle works. Also Ray Dalio touches on the US currency, the dollar being the global reserve currency, thus making the United States a mega power. However, if they print too much money, they are risking the reserve currency status that allows them to print money, borrow money and help the economy, something other countries cannot do when we'll see the example of Brazil. His conclusion, his message is don't blow up due to a paradigm shift. So when investing, we have to think, okay, what is going to blow up if currencies lose value then you know what will a person owning 10 year bonds look like in 10 years, but that's the message Ray Dalio is sharing with us. Okay, don't blow up. Now let's dig into the details. Let's go to the money credit and that details that Ray Dalio is sharing. His article, he wrote the article and I think there are only two figures in it. So I'll go through his details. I enjoyed the read and I said, why not make a few notes and share them in a PowerPoint presentation? So what is money? The long-term debt cycle explained in six parts, six steps, the US situation, the current situation, his conclusion and just one slide of my view. Let's start, I hope you enjoyed this. If you enjoy this, please click like for the YouTube algorithm, subscribe if you haven't and click on that notification bell to be notified when there might be an interesting video for you. So this is Ray Dalio's circle that we have to understand in order to understand how the economy works, how politics works and how money and credit work. So we have wealth that many see as a function of money and credit, money and credit influences the economy. The economy creates the conditions, economic conditions that later influence politics that again influences wealth, truth taxes, wealth gap issues that might come in the future. So this is the circle that at the end of this video you will probably fully understand and you will understand how to position yourself over the next five, 10 investing years ahead because Ray Dalio is saying how there is a paradigm shift coming at us and we want to be smart, we have to be ready. He doesn't know when it will come but it is likely that somewhere in the future it will come and if you are not ready to it doesn't matter if it comes five, 10, 15 years down the road, if you blow up then you are not in a good position. I'm thinking here about pension funds that have a lot of their wealth in bonds. So let's start the timeless and universal fundamentals of money and credit. So we all have revenues. Now this is discussed no matter whether you are a country, a government, individual, a business, nonprofit organization, we all have revenues that come from our income, job, business, capital. Then we have expenses, business expenses, life expenses and then that leads to net income that impacts your balance sheet, your wealth and debt. In the current situation revenue has declined for governments, for individuals. It's a very tricky situation. Expenses, if you have a lot of debt those are fixed relatively so you have to see how to cater to those expenses and that will have eventually a hit to the balance sheet wealth and that situation that might lead to a lot, a lot of issues down the road. So if you spend more on then you what you make then you have debt, your debt is someone's asset. That's extremely important to understand. If you default on your debt or the value of your debt it also means that the value of someone's asset goes down and that's a core principle with the values how the economy works, his principles because it's all a machine and if you put something in here, there somewhere else it comes out and if you take something out somewhere else it takes even more. So that's all the same for companies and the key is where will this situation impact from revenue, from expenses and especially net income and will it create holes in peoples and governments balance sheets and wealth levels. Now, what is money? Money, we all use it but it's extremely important to understand what is it? The dollar is the reserve currency of the world 55% of transactions are made in the United States dollar 25% of the transactions in euros and the rest is, well, I would say, oops. However, given that the USD is the reserve currency of the world, the government can borrow really, really easily and really cheaply especially in crisis situations because everybody's rushing to the safe haven of the dollar and we see that the interest rate on the five year treasury note went from 3% the end of 2018 to the current 0.47% as investors rush to the perceived safety of the dollar. However, other countries that don't have reserve currency that don't have a strong currency that have a lot of debt in the dollar as the dollar is getting stronger, their issues simply become bigger and bigger just due to currencies and situations. For example, the Brazilian real was at, I think, $1 was 1.55 reals in 2011 then it went to four, then it declined to three and now we are already close to six. That's a huge hit to the economy, to the stability of the economy. And this also shows how if you don't have a reserve currency you cannot print money to pay for your debt and we'll see later how impactful that is and what's also the risk the United States are running. What are the fundamentals of money? We have to understand that money isn't wealth. Money can be created by credit and if you want to increase wealth you need to increase productivity. This is just an example we spoke about this in a video. This is the house that we bought, I think it was 2014, 2015 for 280,000 euros and then we sold for 442,000 euros just last year. So in four years we have increased the value of the house 50%. However, the house except for a little bit of cosmetic improvements didn't really change much but the value went up 50%. Did we create wealth? No, because the house is still the same house. So this was the house when we bought it, the price was 280,000, now it was 442,000 but nothing changed, the house has been the same and it's still the same house. So wealth wasn't created but we made a lot of money on it but we didn't create any more wealth and this is extremely important to understand for Ray Dalio's perspective on the economy and the world. So the actual wealth hasn't increased just the calculated wealth has increased when something goes up in value. The actual wealth of the world didn't increase because we made 150,000 on our house. What increased is the money in circulation because somebody took a loan for 50% more to pay for that house. And this is all explained with cycles. We have an economic boom, economic downturn, then after the downturn, after the debt restructuring, then we have the recovery and that's how the economy grows with ups and downs. And the banks, the governments, they like cheap credit and money because that makes everybody happy. You can buy houses like the ones we have just mentioned. However, in a recession, when there is a tightening of credit we are all said it's difficult to buy a new car, it's difficult to buy a new house and that's always results in short and long term cycles. The short term cycle lasts usually five to 10 years and that's the normal recession that we have been seeing through our all lives. However, there is also the long term cycle which we'll discuss now and which is Ray Dalio's message that we are at the end of the long term cycle and therefore we are into in for a paradigm shift. The short term cycle, okay, there is a recession, the banks monetary policy is adaptive, lower interest rates, print a little bit of money and then we have another recovery. But each 50 to 75 years, which means it's not in our memory, which means we don't think about it, then we have the long term debt boom and bust cycle. And when that happens, the monetary policies governments cannot stimulate the economy with their methods and therefore we have an issue that leads into hyperinflation, inflation and the currency devaluation that we will see in a moment. And what has to happen is there needs to be debt restructuring or debt devaluation to reduce the debt burdens and start this cycle over again. And that happens every 50 to 75 years. So we have to be ready and nobody is ready because in the mathematical models, the risk projections, nobody includes something except Ray Dalio, of course, something that happens only once in a century. And let's start with the cycle. So how does the debt money credit cycle start? Well, it starts with hard money. What is hard money? So hard money is money that is backed with something hard. Real assets can be gold, silver, copper, nickel, whatever. And that means that if you have money, there is some real store of value in the form of something else. Not a bank note, not a promise, but really, really gold. And this is how you can trade. However, it's difficult to create credit with it. And then they invent claims on hard money or notes or paper money. However, this is $100 US dollars. And if you look at the red parts of the note, you can see that it was a gold certificate. So $100 in gold coin payable to the bearer on demand. So for this note, you could get gold. So it was backed by gold. The United States dollar was backed by gold. However, today, the money is not backed by gold. It's not backed by hard assets. It's a faith-based fiat currency. So it's all based on the trust that we have in the economy and that we can buy something of value with that same $1 in the future. When there are notes, claims, banks taking the gold, taking the claims, lend out the money, and then comes increased debt. The first part of the cycle is increased debt. And when there is increased debt, then you know, okay, at some point people will not be able to pay the debt back, which is in hard money. So when people ask the bank to give them back their money, the bank will not have enough. And then we have a problem that might lead into a depression like it was the case in the 1930s. And then the debt crisis happens when the claims on the bank are higher than the money in the bank. Because the bank took in the money and landed it out. And when those failed, the bank doesn't simply have enough money to give it to the population. What is the solution? Fiat money is the solution. A run on the bank is not possible because the central bank can print at will. So they are stretching the cycle, the dollar 1971, not more convertible to gold. And that was the end of the hard money and going into the Fiat money solution where they can simply print, print and print. So this is the solution, total public debt as percent of gross domestic product, just growing, growing, growing, that will be repaid with money printing. Can that go on forever? That's the question banks like to expand forever, but at some point it simply breaks down and then we have a hard awakening. So since 1971, the dollar is not more convertible to gold. Printing is easy. And at some point money is not a store of wealth anymore. We are not yet there, but look at the Fed's balance sheet. It was below $1 trillion 10 years ago, 12 years ago. And now we are already at 6.5 trillion going to 10 trillion. So a lot of money printing has been going on. At some point people will lose faith in that money. Similarly, the federal debt, total public debt up 23 times since 1982. Now, why debt? You're happy when interest rates are 1% and credit is easy, life is good, you buy a new car, buy a new house, you live well. And then another piece of the puzzle, the rulers that are issuing huge amounts of debt are not going to be around when the debt starts to creating problems. And therefore everybody is attracted by the debt. Nobody complains about the budget deficits because, okay, I'm going to get more money. I'm going to be better now. And then future generations will solve the problems, not the problem for me. However, money printing has an impact. It inflates assets and it widens the wealth gap. So percentage of household net worth as a percentage of GDP in the United States, it was around 350% and then as the money printing started as interest rates went lower and lower, we are now at more than 550% of GDP. So GDP is the economy, it should be the wealth but due to financial assets and printing going up, the value of your house going up, then it's simply higher and higher than the GDP. Similarly to the wealth gap, you see how the top 10% become richer, richer and richer because money is free and money flows into financial assets. And the poorer unfortunately become poorer. This for daily might lead to a situation later, difficult situation later, and that will lead to looking for solutions. What the solution to that? Well, we can have higher taxes, but who wants higher taxes? Please let me know in the comments below if you want higher taxes. Likely you don't want them. Printing money is the solution. And then also when more money is printed, money is not more a store of wealth and therefore at some point people get it and run away for money. What is the solution? How to invest? Well, you can borrow cheaply what the rich do to invest elsewhere where they yield and the protection is higher, other countries, hard assets, real estate and also to be protected. You can sell the debt you have. You can sell the bonds you have because the bonds might end up worthless. In the 1970s, bonds were called certificates of confiscation since there was high inflation after Nixon de-packed the dollar from gold. Other interesting options are buy stocks, gold and other assets abroad or in the country that have real value. Then the sixth part of the cycle, when there is debt restructuring, when there is a currency issue, everybody's fleeing for currency and debt and governments take action like in this case, you were not allowed to own gold in the 1930s. So that's how a government can impact that situation in the economy and force its will on the people. So something like that Ray Dalio expects that will happen again, might happen again, especially if the issues get bigger and bigger. However, at some point, people need to restore, reinstore the fate in the currency, the fate in money and therefore they peg it again to hard money. This is an example from Germany. So governments take action after the hyperinflation that was crazy over the early 20s in Germany. There was so much printing, nobody wanted currency anymore and something hard is needed again, gold or another currency. In 1923 to solve the situation, they created the rent and market index tool called buy law and it stabilized things and 12 zeros were cut off. Then later mortgage bonds were restated just 25% of base value bonds at 2.5%, 2.5% of value. But that's the impact of hyperinflation that might or might not happen depending on how much printing there is. And this is the extremely important message from Ray Dalio's article that in the long term, that cycle holding that as an asset that provides interest is typically rewarding. So if you hold the bond, you will get your interest rate, you will get your yield and it looks happy, your look happy inflation is low and everything is okay. However, it's like holding a ticking time bomb that rewards you while it's still ticking and blows you up when it goes off. And as we have seen that big blow up, the big default or big devaluation happens something like once every 50 to 75 years. And that's the big concern Ray Dalio has for the current financial situation. Imagine all the pension funds that own so much that there is more bonds than stocks, that 100 trillion of bonds with a little bit less than 100 trillion of stocks.  A solution in ancient history, so the year of UBLE, which came every 50th year was a year of full releasing people from their debts. Releasing all slaves and returning property to who owned it. So it's allowed for planning, for not allowing for the long-term debt cycle to go bust. We don't have that now, but perhaps it will be an interesting solution. And the message is be ready for the cycle because most people don't pay attention to this cycle much in relation to what they are experiencing. Ironically, the closer people are to the blow up, the safer they tend to feel. Nobody remembers how others blew up a long time ago at the earlier stages of the, at the late stages of the previous cycle in the 1930s. And therefore people feel safe with bonds and therefore we see the 0.3 interest rate. This is Ray Dalio's explanation. First we have hard money, metal coins, claims on that hard money, then to solve the debt issues, fiat money with no hard money claims, but just trust, much more printing that leads to, again, back to hard money, which is the cycle and we have to be ready for that cycle. Then the situation in the United States, 1944 Bretton Woods Agreement, the US dollar was the reserve currency of the world. They owned most of the gold, two thirds of it. And then in 1971, they defaulted on debt gold because of higher budget deficits, because of the wars in the 1960s that always cost a lot of money. However, that wasn't such a big issues for America, but it was for non-American people that had debt in dollars. They defaulted and that's good for America because they are the reserve currency. And since then we have only seen lower rates. Lower rates created bubbles. We had the dot-com bubble, the debt bubble of 2008, monetary policy bubble, quantitative easing over the last 10 years, that created inflated financial assets and much more debt. How was the debt crisis of 2008 solved with quantitative easing? So rates were already at zero, so we started printing money, printing more and more money, thus devaluing the actual value of money. And we just have to wait for people to take notice of debt. Now, the next step as this current crisis, corona crisis is here, the next step is helicopter money and the Fed unveils new stimulus plans. Trump just signed another stimulus bill in Europe. The budget deficits will be huge. The ECB is doing whatever they can to help the situation. So default, perhaps not because they are printing money, but not everybody can print money. I don't know, Brazil can't print money, Argentina can't print money because they don't have the currency power to do it. So that will be something interesting to see how it develops over the next years, let's say. And it might lead to the risk to the reserve currency power that the United States have now, which is even more important than the military power because you can borrow as much money as you want and spend it as you want. And you have seen the interest rate going down actually, not up because the deficits, budget deficits will be huge. So it can help Americans, but if too much printing, there is the risk of losing reserve currency status. The conclusion, printing is the solution to the situation. However, the solution stops at some point. It creates a wealth gap, political issues, and those political issues have to be solved with that default restructuring. And then we have a new world order and then we go again into the long-term debt cycle. When it will happen, we don't know, we will see, but we have to be ready for whatever happens. Thank you, Ray Dalio. My view, it's simple, own real assets, fixed interest, low risk debt, work hard on income sources for safety, accumulate during these difficult times, accumulate real wealth, have or always a safety cash on. Personally, I'm accumulating stocks that have real assets, commodities, utilities. I'm looking to buy real estate for us again and get rid of the cash that we have since we sold our last home. We hope we can buy something of real value before the crisis hits us and the money loses its value. We are sitting on a few euros here. Then if you want to see more about me, who I am, my research, my free stock market investing course, please check SvenCarlin.com. Thank you for watching. Click like. I'm looking forward to your comments. Subscribe if you enjoyed this and similar content from macro to stock analysis.


T F N N headline news update Welcome folks. We had the Dow Dow industrials finished up 189 Nasdaq up 130 S&Ps up 36 gold gold down $9 and 50 cents at 1567 an ounce we had silver off 60 cents They took that thing self big time with volume folks $17 45 cents light sweet crude up 45 cents $53 59 cents a barrel notes and bonds Ten year note down 10 ticks 130 18 30 year off 25 at 160 107 Let's go over to the 30 year and take a look at the 30 year you're gonna see that they both pull back They had some volume folks, but they went to higher highs So what you get there is that when you go to a higher high bottom line it wants higher price I do expect the way that the both the note in the bond market trade in today is that yeah this Bounce is going to continue The note in bond market look like they want to pull back a bit that being said the note in bond market on a long Basis want to go to all-time highs if we take a look at the TLT You can see it inside that TLT. Yeah yesterday. You went up with though It's gonna be close 10.9 million and come back with 9.5 today They threw some volume into that TLT. Look at that at the close That's that's some volume at the close. No no doubt about that. Let's see what we have there Gonna be a big number There you go 1.3 million coming in at the close that being said guess what doesn't just change the context of What I was just talking about because you still have to pull back that has light of volume versus how we went topside King dollar it's gonna be intriguing to see what King dollar can do out here What you did King dollars been on a bounce for about two and a half weeks King dollar did get to the 98 156 today then gave it up on price right 97 967 now the number is 99 116 folks in order to get back in the uptrend It couldn't handle it. That's saying that King dollars gonna stop pulling back We'll see what kind of pressure that puts in the market in general You know a lot of things happening simultaneously one of the biggest things that are gonna be happening, of course is that how Much money has Apple made Apple's gonna be coming out this afternoon at 430 with their numbers You get AMD coming out right now you get Xilin's coming out right now You get eBay coming out right now you get Starbucks coming out right now then tomorrow morning We're gonna have Microsoft so you get a lot of things happening that are gonna move this market around have a great night Folks have a safe night come back and visit us tomorrow. We kick off that tomorrow morning My son Tom kicks off new program great program morning market kickoff 830 right here. Have a great one