Investoid

I came across this great piece by Martin Sosnoff, who runs a $6 billion investment management firm.

Basically, Sosnoff is saying that with so much wealth in the world, that eventually the scarcity of profitable investments will cause deals to go south, inflation to rise, interest rates to go up, and all the market booms will come crashing down.

He uses several analogies from past booms and busts and points out that several of the signs are here today that could lead to a crash (flat yield curve, high liquidity, lots of people using leverage for real estate and other alternative investments, etc.).

It has definitely been awhile since we’ve seen a widespread global slowdown (I’d say the early nineties was the last major recession for most of the world). Since then we’ve seen corrections in various markets, from Asia and Russia in 1998 to North America in 2001-3, but nothing has really brought down the growth from around the world for a long time. We are at a high point of global interconnectivity economically and financially, which definitely is a precursor for a widespread collapse.

I am not sure whether there will be a precipitous decline around the world or not, but I think it’s wise to diversify your holdings accordingly. As I’ve said before, long term and high risk bonds are one of the worst things to be in, since their yields can’t go much lower before they bump into short term Treasury rates. I don’t think it’s time to put all your money into consumer staples and the like, but I would definitely take money off the table from your high risk investments like China/emerging markets, energy, etc.