Sunday, January 6, 2013

2013 Outlook Part 1: Introduction

2013 Outlook Part 1: Introduction
2013 Outlook Part 2: What Is A Bond?
2013 Outlook Part 3: How Did We Get Here?
2013 Outlook Part 4: Can You Lose Money In Bonds?
2013 Outlook Part 5: Global Debt Binge & Policy Response
2013 Outlook Part 6: United States Bubble Bond Prices
2013 Outlook Part 7: Residential Home Prices Have Not Bottomed
2013 Outlook Part 8: Commercial Real Estate Cap & Interest Rates
2013 Outlook Part 9: Chapter 2 Of The Sovereign Debt Crisis Begins
2013 Outlook Part 10: Japan's Government Debt Bomb Goes Off
2013 Outlook Part 11: Should I Buy US Stocks Today?
2013 Outlook Part 12: How To Invest

We live in a world on the precipice of the greatest change in financial history. This simultaneously comes at a time when almost everyone in the world believes that moving forward, things will be the same.

This means that the relative pricing of financial assets, the relative structure of business and economic models, and the relative structure of how people in general live their lives is about to face the greatest (non-war) dislocation in history.
If you can understand just those first two paragraphs, then the rest of the story, charts, and data presented over the following pages are far less important. You will already be ahead of the vast majority of people.

This change will create the greatest wealth transfer in history for those that are prepared and understand it is coming, and it will decimate the lives of the majority of people who have based their finances and their lives on a model of the future extrapolating forward on its current path.


How did we get to this major change in history and why is it that no one knows changes are coming?

Our entire quadrillion dollar plus financial system is built on a foundation of debt. To see this, you only need to go back to the very beginning of the chain and you find that money, when first created, is lent into existence. This debt today is known as a bond. If this concept is new to you, I highly recommend watching the following videos to provide yourself with a basic understanding of the modern monetary system.


These bonds are now layered across every part of the financial system - beginning with the balance sheet of the average citizen. They probably own a home (mortgage bond) have a CD (bond) at the bank and invest a large portion of their 401k directly into a Prime Income Fund (bonds).

Corporations around the world are financing a large part of their growth through debt issuance (corporate bond) and even the countries those corporations are located in finance their operations through debt issuance (government bond).

My goal with this outlook is to take you further in depth on how we got to the world we live in today and provide you with my lens on how I see the world unfolding in the years ahead. I will use simple models/examples and move at a pace that should be readable for a novice entrant into the financial markets but still provide enough data to to challenge someone who has already spent a significant amount of time in this field.

My goal is not to provide a “hot trade of the week,” but to reshape a portion of the way you look at everything around you.  Imagine that you could go back to 2007 and you had just a fraction of an understanding that something didn’t feel right. The business and financial world were valued around home prices rising forever. If you thought home prices might just move sideways (instead of collapsing by 40%), how would it have changed your thinking about the world?

What if you had worked for a mortgage broker or home building company? What if you were a real estate agent or someone involved in the home upgrade business (financed by home equity)? What if you worked at Home Depot in a bubble market? What if you owned a home in a bubble market or your business would be dramatically impacted should real estate prices fall?

What I want to do with this outlook is to show you the next subprime mortgage crisis before it arrives.

With this understanding I hope you will be able to make choices in your life beyond just a “hot trade” in your account. If you are young, this coming change to the financial world and global economy will impact your life for the next 20 years. Decisions someone makes in their 20’s or 30’s are magnified exponentially due to the law of compounding interest when you look back from the future.

Let’s begin.

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