Today I want to focus your attention on what I believe is the most important topic we investors should be talking about right now.
This thought has been circling in my head for a while, and it’s time I let it out.
And when I say this is the most important thing for us to think about… I mean it.
It could make or break the next 10 years of your life.
We are entering an unprecedented economic environment, one that will see many people suffer…
But that’s only because they don’t understand what’s going on or how to prepare for it.
I call this the period of Great Stagnation.
What The Great Stagnation Means For The Economy
I want to get a little technical to lay things out. Please bear with me. As I said, this situation will have a dramatic impact on your life.
The coming decade is going to be defined by a stagnating economy.
There will be two primary reasons for this low growth.
The first will be the aging population.
Japan was the first big economy to face this problem. Now the rest of the world is going to follow suit.
Out of the 10 largest economies in the world, which together represent 88.5% of global GDP, only India (about 3% of global GDP) isn’t headed toward this reality.
This will lead to increased healthcare and pension costs, higher taxes, and less workforce participation… all of which will put strains on economic growth.
The second reason for low growth will be the wealth gap.
We are already seeing this play out, and the expanding cycle is giving rise to far-right and far-left politicians across the globe and creating huge political divides.
The problem is that it’s extremely difficult in such an environment to pass reforms and to implement new legislation, two things that are vital to being able to adapt to ever-changing economic and social landscapes. This inability to making ongoing adjustments will, again, hamper GDP growth.
This means that governments will have to stimulate their economies artificially to prevent protracted recessions.
However, with interest rates at or near zero percent, the only way to do this will be through large expansionary fiscal policies.
To put it in plain English, this means more government spending… the effect of which will be greater budget deficits.
And, as economic growth won’t be high enough to lower these deficits, countries will resort to the ultimate solution—printing more money.
Printing money always leads to inflation… which helps devalue outstanding debt, making deficits less severe and easier to service.
Of course, most of this inflation will come in the form of rising asset prices (stocks and real estate), not increasing values for consumer goods and services, which is what the official inflation indicators, such as the Consumer Price Index (CPI), measure.
Indicators like the CPI will remain low thanks to a powerful deflationary force at work in the marketplace, pushing consumer goods and services prices down—technology.
Improving technology uses resources more efficiently and replaces existing goods and services with cheaper alternatives.
With official inflation low, central banks won’t feel the need to raise interest rates to curb it in. The current low rates of interest will continue.
Finally, this combination of strong bullish forces—low interest rates and money printing—and strong bearish forces—low economic growth and high deficits—pulling in opposite directions will lead to higher stock market volatility.
It won’t be anything like the 1970s, but it will definitely be an increase from the extremely low volatility we witnessed last decade.
How To Prosper During The Great Stagnation
I understand that this can seem confusing.
But it’s so important that I’d ask that you take a minute now to re-read what you’ve just read. I can’t stress enough how critical this is to your financial wellbeing.
In short, the Great Stagnation will be defined by low economic growth, high budget deficits, more money printing, low official inflation, low interest rates, and higher stock market volatility.
Given all that, the question is: How can you prosper in such an environment?
The answer is surprisingly simple.
First, avoid holding cash. Money printing will erode its value fast.
Instead, you should move your funds into assets that money printing and low interest rates will inflate—real estate and stocks. Preferably, you should hold both.
Moreover, higher stock market volatility will continue to benefit the gold price.
The Great Stagnation really began around 2018, and we are already seeing gold benefit from the subsequent stock market volatility.
I suggest holding 10% to 20% of your portfolio in gold or related assets.
Whether you finish this decade rich or poor will depend on how you position yourself today.
Diversifying your portfolio between gold and stocks or moving into real estate will greatly increase your prospects for a positive outcome.
Fortune favors the prepared.
Good investing,
Leon Wilfan
