Friday, June 10, 2016

The Structure Of This System
Will Trigger A Cascading Effect & 
Then The Unthinkable Will Happen
"If I had gone to people four years ago and said, ‘40% of the world’s sovereign bonds would be at negative rates (even 40% of corporate bonds now in Europe are coming out at negative rates), central banks would expand their balance sheets $10 trillion, and that the world would somewhat look normal, with all of the geopolitical risks that we have, people would have said, ‘John, what are you thinking?’ And yet all of those unthinkable things have come about .. The world has been turned upside down, and we now have to think the unthinkable. And it used to be that thinking the unthinkable was dangerous to your portfolio. Now you have to look at it and say, ‘Thinking the unthinkable is the only way to be defensive.’ .. And so I look at the chain of risks that are around the world — Europe, China, Japan, the emerging market total debt, the U.S. potentially going into a recession, and there’s a weak link somewhere and I just don’t know which one of them is the weak link. But when one of them breaks I think you are going to see a cascading effect. And what you will see as we start thinking about the unthinkable, is central banks reacting .. If the U.S. goes into recession, the deficit immediately goes to $1.5 trillion and you are looking at total U.S. debt of $30 trillion within 5 years. That’s an unthinkable number. The problem is there’s too much debt in the world and it’s growing. It’s becoming a massive inhibitor of growth. Could the central banks of the world recognize that and say, “OK, let’s all hold hands and monetize our debts together?’ That’s very possible. It’s unthinkable but we have to think those things."
- John Mauldin*
LINK HERE to the podcast

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