Investing In The ‘Age of Transformation’ by John Mauldin of Mauldin Economics
Whether you’re an individual investor looking for top-shelf research and actionable recommendations to help you build a better portfolio, or an investment professional on the hunt for idea generation and expert analysis you can take to your clients, you face a complex and increasingly challenging investing landscape.
Long gone is the 60% stocks/40% bonds asset allocation model that guided our parents’ generation when it came to building wealth for the future in the financial markets.
Today, we live in what I call an age of transformation.
Two transformations, actually, are at war right now all around us, and they’re reshaping the investing landscape.
They’re both, as you’ll see, unprecedented in human history.
First, the financial world is beset by sovereign debt in nearly all corners.
Central bankers exacerbate this debt bomb by expanding central bank balance sheets, pressing interest rates to the floor, and trying to quantitatively ease the global economy back to widespread prosperity.
That’s the first historically unprecedented transformation occurring all around us right now.
When I write about how central bankers are actively making the global recovery from the Great Recession worse, I call it the “Muddle Through” recovery. You may have seen my recent Thoughts from the Frontline piece on this on Saturday, May 24.
Explaining what this debt transformation looks like and showing how it affects savers and investors worldwide was the focus of the first part of my recent presentation at the Strategic Investment Conference (SIC) in San Diego.
You see, I’ve been thinking so much about this Age of Transformation and feel so strongly about how important it is that later in this letter, I’m going to disclose to you an idea I’ve never written before.
First, here are two charts that distill quite well what the global debt transformation looks like.
Here’s total debt to GDP from 2007-2013 in select economies:
As you can see, nearly every major Western country has taken on substantially more debt.
And here are total central bank assets for major jurisdictions from 2006 through March of this year:
Two things are clear from these charts.
The toxic mix of debt and expanding central bank balance sheets is, to put it mildly, unsustainable and counterproductive for recovery and growth.
When I describe a “Code Red” financial world, to use the title of my latest book written with friend and collaborator Jonathan Tepper, this is the scenario I’m describing.
There are countless other prognosticators, hedge fund managers, and elite-level thinkers (many of whom I count as personal friends) who have been ringing this warning bell for years.
You read me, presumably, and hopefully also participate in the research and advisory products offered by my Mauldin Economics team because you want to know what happens next.
What I mean is, regardless of your position – an individual or an institutional investor – you want Mauldin Economics to help you identify and act on global trends as they develop or, in the best case, before they break out.
You want the idea generation, the boots-on-the-ground insight, the analysis, and the actionable advice to not only survive the transformational age of debt explosion, but actively turn it to your advantage and prosper from it.
If you invest for yourself, you want the reasoned analysis followed by the action to take.
If you are a financial industry professional, you want ideas that can send your own research in a direction of your choosing so you can better serve your clients.
Mauldin Economics takes both goals seriously. Everything we do is shot through with a diligent, responsible attempt to serve both the individual and the professional.
That’s why today, in this note, I want to officially codify the message and the mission of the advisory services I publish at Mauldin Economics.
The Mission of Mauldin Economics
Everything – and by that I mean every research note, every recommendation, every dollar spent on travel to get to the bottom of a trend or an idea that my team subsequently reports back to you – is centered on two goals:
First, I seek to use every research avenue possible to deliver to my team the sharpest macro perspective I can. Then they take my macro analysis and generate well thought out, unbiased investing ideas and actionable recommendation content.
Second, we strive to be humble enough, forward-thinking enough, and disciplined enough to step back from the big picture of the debt transformation and show you what comes next.
What comes next is the second historically unprecedented transformation of our time; it was the focus of the latter part of my presentation at SIC.
The second transformation, as you can probably guess because you know my enthusiasms and interests, is tech progress.
How the tech transformation, in other words, blossoms in the face of the unprecedented global debt transformation will quite literally, determine the path of humanity going forward.
As I’m about to show you, this struggle is cause for relief and celebration, not panic and dread.
And it’s the unique, you-heard-it-here-first position of the Mauldin Economics team and me that the power of the tech transformation currently underway will overwhelm and eradicate the debt transformation.
Below is the first chart I used to make this point during my SIC presentation:
This chart, while somewhat rudimentary, shows how we think of progress and ability over time.
The orange line demonstrates a linear trend. One advance leads to another.
Fire leads to the ability to cook food. Cooking food leads to increased protein consumption. People become stronger. The problem is, that’s not how tech progress works. It isn’t linear.
Tech progress compounds. It builds upon itself exponentially.
That’s the green line in the chart above.
Fire leads to cooking food, which leads to increased protein consumption, which leads to organized hunting parties, which leads to the creation of communities, which leads to trade, bartering, and free time because we’re not all constantly hungry and foraging for food.
Free time leads to leisure pursuits like making better spears, which leads to more successful hunting parties, which fuels more and more and more innovation.
And pretty soon… Gutenberg invents the printing press. A young engineer named Henry Ford starts tinkering with the internal combustion engine. Neil Armstrong, speaking over a crackling radio, says: “That’s one small step for man, one giant leap for mankind.”
You get the point.
Today, the two warring transformations, the debt transformation and the tech progress transformation have pushed global society to an “adapt or perish” moment.
The sooner you adapt to the imminent and, quite frankly, profoundly life-improving implications of the tech transformation, the better.
Mauldin Economics is uniquely positioned to help you and your portfolio prepare for and benefit from the ramifications of the debt transformation and the eventual success and spread of the tech transformation.
In the Yield Shark income-investing advisory letter, for example, the Mauldin Economics team sends you what it considers to be stable and growing dividend stocks that can serve as cornerstones to an all-weather portfolio.
Here’s why dividend stocks are a necessary component to any portfolio – individual or institutional. Take