Investing With the US Debt Situation...Stocks, Bonds, RE, Bitcoin, Gold...

Duration: 9:58 1502 transcript words EN summary

Video summary

The video addresses the escalating financial instability caused by the United States' unsustainable debt trajectory, highlighting recent warnings from figures like Ray Dalio and the market's volatile reaction to rising interest rates. The speaker points out that a significant portion of the federal deficit is now consumed by net interest payments, which are projected to exceed one trillion dollars annually by the end of the decade, surpassing the primary deficit itself. This situation creates a dangerous spiral where attempts to engineer lower yields or print money to service debt only push rates higher, leading to faster economic breakdowns. The speaker notes that even if politicians choose the path of least resistance by printing money, it inevitably leads to recessions and currency debasement, as seen in Japan's long-term stagnation where wages have fallen drastically relative to other nations. In response to this macroeconomic uncertainty, the discussion shifts to investment strategies focused on capital preservation rather than speculative gains. The speaker argues that traditional assets like cash are becoming less reliable, while gold and Bitcoin remain unpredictable regarding timing despite their potential for significant appreciation. Instead of relying on shiny metals or volatile cryptocurrencies, the emphasis is placed on real, producing assets and value investing principles. For instance, while Berkshire Hathaway is described as a financial fortress with steady returns, its stock price has already risen significantly over the last decade, meaning much of its future growth is priced in. The speaker advocates for a mindset that prioritizes safety margins and avoids leverage, suggesting that investors should only deploy money they do not need for living expenses or debt obligations. Ultimately, the core message is that value investing is not a one-time solution provided by a banker but an ongoing process of research, analysis, and patience. The speaker illustrates this with examples like Archer-Daniels-Midland, showing how entry points change over time as prices rise, making earlier investments less attractive. Rather than trying to predict exactly when a crisis will hit or where gold prices will peak, the strategy involves constantly monitoring businesses for opportunities that offer a margin of safety. By focusing on understanding business fundamentals and maintaining a conservative approach, investors can navigate potential market crashes and government interventions without panic. The video concludes by encouraging viewers to adopt this disciplined mindset, prepare for various scenarios, and utilize available resources like research platforms and educational courses to build resilient portfolios capable of withstanding future economic shocks.

Read the full video transcript

I got two emails recently. One was from Ray Dalio, how countries go broke. The other was Anthropic big plans to go public, bigger than SpaceX. And I want to discuss this because this was a great LinkedIn article by Ray Dalio. I urge you to read it. There were other comments going on like Citadel treasury buyback repression, what's going on. But the markets have been reacting. The 30-year yield going up reaching up 4.7 on 10-year, gold reacting, Bitcoin exploding, the dollar index weakening. As the dollar, if they buy more, if they print more, if they try to engineer the situation, then it gets ugly. Even the great Druckenmiller said how buying back and engineering that bond yield is something that you pay later. In the meantime, Anthropic is rushing to get to the IPO because now there is still a lot of money despite they have raised 65 billion in May just a few months ago. They want to go big and raise even more because now they can and nobody knows for how long will these good times last because this is the key chart, one of my favorite ones. If you look a little bit, deficit going closer to two trillion per year for the US government. Net debt to GDP of the government going higher, but the key here is net interest rates payment one trillion. So, more than half of the deficit goes for interest. As interest rates are going higher, this will be two trillion by the end of the decade, more than the deficit. Then you can see here more of the deficit is for net interest payments. That's not sustainable. If there is a recession, not these rosy projections by the CBO, then it all breaks, all the financial system breaks, and when it starts breaking, it breaks extremely fast. We cannot predict when it will happen, but we can discuss how to think about that from a personal investing strategic perspective. Bonds, stocks, gold, Bitcoin, whatever, Berkshire or something else. When it comes to the situation, we all know that they're going to print more because the solution is, like Ray Dalio says, 3% deficit. If that happens, all Western countries go into recession, politicians lose their jobs, it gets ugly. So, the easiest thing is to print money, intervene into the bond market like that, but that pushes rates higher, which can create a spiral faster. You can see here, we were all expecting lower rates here, just temporary inflation, and what happened to rates? Japan, all those rates went higher. Germany, bond rates are higher than they have been in the last 15 years. So, the first solution is ugly, the second solution is ugly, the first is better long-term pain now, but nobody wants to take the decision. Who is thinking long-term? Nobody. Dalio says that his guess, which will be a bad one, is that the reckoning will come in three years, give or take two. So, when he says that, it can be one to five. And the thing is that he has been right on all the calls he made in the past, he has been right. Cash is trash, cash is better, this, that. Pretty much right, but he's vague on the timing, one to five years, therefore also his funds do not really good. The strategy is to protect capital. Okay, that's a different story. A great example from the LinkedIn article, can we just print like Japan? And look at this, the Japanese worker wages have fallen 55% since 2013 in common currency terms relative to wages of the American worker. 76% losses in bonds to gold since 2013. Those are staggering numbers. Then he expects Bitcoin and gold, he you're always cool when you say that. We'll discuss that, too. The problem is with yields. Stocks 1%, what does that mean? What is the return you get? And the thing is that all of these, you can't nail them. Dalio says, because you can't nail exactly what will happen to be diversified. I'm more of a value investor. I'm for win-win situations. What does that mean? When mortgage rates, 30-year fixed mortgage rates were in the low single digits, 2-3%, what was I discussing here? Buy a home, take a 30-year fixed mortgage. I made this video 2021 for my brother. He didn't buy. His now spouse did. So, so they are set on that. However, win-win situations, let's look at those win-win, which is the essence of value investing in this environment. 1% yield, P ratio is 30. The average P ratio was 15-16. If we ever return to here, that's minus 50% for stocks. The thing is, businesses are not bad. Protect from inflation, can transfer prices, will survive, especially the good ones. But all of that is already priced in at these P ratios. So, it's unlikely we'll get more protection. You already got that over the last 10-15 years when the government printed money, bought this and that. That's already happened. Gold, it was 5,000, then it went to 4,000. When it was below 3,000, I told you gold will hit 5,000 and I'm telling you now gold will hit 10K and then even 20. But, the thing is that I don't know when. So, it might do that next year. It might do that in 2040. And then, compared with inflation and this and that, now, especially after the run over the last 2 years, again, a lot of the good seems to be priced in. Yes, we're living in an environment, especially if you check Bitcoin, where value to price doesn't matter. It's all a gamble. And the same holds for gold. I'm more leaning towards real assets, producing assets, not shiny metal. Then we have Berkshire, Berkshire B ETF. We discussed it in this video. Depending on the valuation, depending on this, there is a productive return, 4-5%, 6%. It's not bad. It's financial fortress. But then again, the stock price is up 4X over the last 10 years. For a conglomerate like Berkshire, a lot is priced in. My message is always value investing. Sven, how do you invest? Well, first and foremost, value investing is not a solution that you go to the your banker, drink a cup of coffee, the most expensive one is in your lifetime, and then he gives you the solution for everything. Value investing is about waiting. We discussed strong buy, Archer-Daniels-Midland, food. Thus, inflation does this cheap. The price was 50. Was 70. We discussed it and now it's close to 80. Or what is it? 77. So, here it was a starting idea to add to your portfolio. Now, a year and something later, it's not that good anymore. I wish I could give you answers, but it's all a process. Daily says 3 years, 1 to 5, keep that in mind. I cannot predict that. Perhaps in 3 years gold will be at 3K or at 10K. We cannot know that. But then we look at value, we constantly do research, we analyze businesses. For example, Tencent we recently discussed, Berkshire, many other, Uber, depending if you want to bet a little bit more. I just updated my value quadrant. There are some interesting buys there. You can check the whole video. It will be in the link in the description below. And that's what I do. For me, it's a process. I follow a lot of companies. When something hits margin of safety value, then it goes into my portfolios. My book will be coming out soon, so that's something to read for a mindset. Value investing is a mindset, not this this this structured and it's done. There is a free value investing course in the link in the description below. And it's a process of risk first. If there is risk, we don't do nothing. And if there is no risk, then whatever happens with governments, with this, you are okay. That's the win-win message I'm trying to share. Not predicting where will gold or Bitcoin go. Then I always make conservative analysis. If the price is right, then it might get me a win. We discussed HP. That's also 50% up. Now, not as interesting anymore, but it was interesting. And then here a great comment. People should invest house, less leverage. Then again, something that I don't think gets across very good. I expect you always invest only the money you don't need. House, mortgage, life, debt, safety. That's all set. Then you start thinking about investing. And that's something I see a lot of people missing. There's something to think about before the next crisis. Check what I do on my research platform. There are some value investing buys. The value investing quadrant, interesting, educational situations. See how it fits your portfolio. Who knows what will happen in the future. I like to be ready for whatever.