Investment Blog

The world order started changing in 2008 when significant quantitative easing (QE) – money printing and near-zero interest rates, was announced by major central banks led by the US Fed during the subprime crisis.

Although, that provided stability to the financial markets and the economy, the US economy never recovered from the debt trap. Any attempts to reduce quantitative easing lead to stock market tantrums and economic slowdown.

Actions taken during Covid accelerated the debt burden. 20% of the US dollars ever printed, were printed in a single year. That’s a massive amount of money going to the financial systems. We know this led to inflation all over the world.

To avoid short/medium-term pain, the money printing machines kept running. Running the economy on steroids has its repercussions. Too much of anything loses its value. Too many dollars started losing credibility.

The journey towards de-dollarization started. Using the dollar as a weapon by confiscating Russia’s dollar reserves accelerated the path to de-dollarization. Other nations feared a similar fate if they opposed the US.

When Trump became the president, I thought he would damage the US and the world economy with his crazy, dumb ideas.

His idea of America first makes it apparently clear that everyone else needs to fend for themselves and the US is in no position to claim leadership of maintaining world order.

The huge amount of unsustainable debt with high-interest payments leaves little room for the US to continue to fund wars and support other nations.

The last week’s antics of Trump have done major damage to the credibility of the US as a world leader. The trust and understanding developed over decades of working have been broken in just a few days. He has just accelerated the inevitable demise of the US dollar as a world reserve currency. The biggest evidence was the rise in treasury yield despite the expected slowdown, which indicates a reducing appetite for US bonds.

How to protect your investments against this backdrop?

1. Have exposure to Gold: We have been investing 15-20% of all our client’s portfolios in Gold since 2018 (when quantitative tightening was reversed to easing)
2. Don’t overexpose your portfolio to the winners of the last decade. Focus on valuations.
3. Diversify across asset classes – equity, debt & Gold and across geographies. Stick to your suitable asset allocation.

And hope the change in world order goes through without much pain.

Originally posted on LinkedIn: www.linkedin.com/sumitduseja