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The Cardinal Sin Of Investing: Permanent Impairment Of Capital
The key message was: When smart analysts independently find the same patterns in the data, it’s time to take notice.
Well, many of you did, by participating in this week’s Dangerous Markets webinar, which featured Grant and Lance.
In it, both went much deeper into the structural fragility of today’s financial markets and the many reasons why economic growth will remain constrained for years to come.
The excessive build-up of debt in the system — and the absolute dependence on its continued expansion to keep the economy from imploding — is, of course, seen as the prime risk to future growth.
As Lance demonstrates here with several of his excellent charts, so much leverage has been taken on that its servicing is increasingly stealing capital that would otherwise go to savings, consumption and productive investment. Going forward, the demands of the debt service will simply result in less and less capital available left over to grow the economy:
As financial assets are (supposed to be) valued on future growth prospects, lower forecasted growth demands lower valuations. Grant calculates that, should the US see another decade of 2% average annual GDP growth (and it has averaged less than that over the past decade), stock prices should be roughly half of what they are today to be considered fairly valued:
And Lance builds further on this, explaining how this moribund growth, coupled with America’s aging demographic trend, will simply savage the nation’s (already troublesomely underfunded) pension and entitlement systems:
…click on the above link to read the rest of the article…
