thoughts on the most interesting investing article I have read in years

[Robert_007]

https://www.lynalden.com/fraying-petrod ... m/#summary

Summary:

"The world goes through periods of geopolitical order and disorder, and with that, comes the construction and subsequent fraying of the global monetary system each time.

More troublesome, the inherent flaw of having the global reserve currency, in a theme that goes back to economist Robert Triffin from over half a century ago, is that in order to maintain the global reserve currency, the country must supply the world with its currency via structural deficits in one form or another.

[content in excess of copyright fair use removed by admin LadyGeek]

This was a strong reminder to me to have a balanced equity position re domestic vs international


Thoughts and takeways from reading this piece?

So curious to see your boglehead opinions

[Beensabu]

This is an incredibly informative article! And it looks like her other pieces are definitely worth reading as well. This is the kind of thing I'm always hoping to find here. Thanks so much for sharing

She laid it all out for us. I highly recommend reading what is written in its entirety.

I was going to say there's not much to discuss since it's all right there, but there's actually a ton...

- There's a reason we export more services than goods, and it's the explanation for the erosion of manufacturing and the middle class.

- The dollar-denominated debt bit is actually the key to everything... It explains so much: why international (and especially emerging) markets tend to take the harder hit during global recessions, why they underperform US during when the dollar is strong, why the Fed is currently buying treasuries. All financial crises are debt-related.

- That darn dollar index chart IS important after all, and the cycles are real, not imaginary. The dollar needs to weaken soon in order for the whole system to keep working. And US corporate profits actually increase when the dollar weakens. So perhaps US equities are not too terribly overpriced. Maybe this is the expectation that is built in, and the equities run up is in anticipation of the next part of the cycle.

- It's not about your portfolio. It's about constantly trying to stabilize everything as much as possible. The Fed has a really hard job. That has to be some serious stress. It's still probably gone and bought too many treasuries though, as that was the price of liquidity.

- The global monetary system is in the process of decentralizing because the US no longer represents a large enough share of global GDP to sustain the current system.

- Instead of buying US treasuries for reserves with their US dollars, China is buying, financing, and repossessing a lot of stuff outside China. It makes sense from their standpoint and sucks for us because it sort of sabotages the system and sets a precedent.

- At some unknown point in the future, the US eventually will be left holding the massive deficits it was required to run in order to keep the current global reserve currency system going. At that point, the risk-free asset will no longer be risk-free.

- There is apparently a possibility of purposeful devaluation of the currency through expansion of foreign-exchange reserves along with reestablishment of on-shore industrial manufacturing, and that just might work out better than struggling against the inevitable.

All of a sudden, this sad strange wonderful world makes a lot more sense.

[Pandemic Bangs]

All that for a Bitcoin ad?? You got me -- I took the bait.

Also, this: "Click here to join the free investing newsletter." Never a good sign...

What do you know about this person/investment advisor? This looks like armchair "scholarship."

[AlohaJoe]

in order to maintain the global reserve currency, the country must supply the world with its currency via structural deficits in one form or another.

The entire article is predicated on the assumption that the Triffin Dilemma is a real thing. It isn't. See the 2018 paper from the Bank for International Settlements, "Triffin: Dilemma or Myth?"

[asset_chaos]

I usually cringe and say no thanks whenever entropy is trundled out in a non-physics context.

[birdog]

I saw the word hegemonic in your post twice. You're not by chance located in N. Korea are you!?

[nedsaid]

Things shift around over the years, the British Pound was the world's reserve currency until World War II and the US Dollar took its place. After that and the shedding of the British Empire, the Pound is still a strong currency and the United Kingdom still has a very productive economy. UK living standards are still high. So it isn't like a possible loss of reserve currency status will be the end of the world for us.

The aftermath of the 2008-2009 financial crisis was actually good for the U.S. Dollar, pretty much the United States was the least dirty shirt in the laundry hamper. I think China would like the role that the U.S. has played but the Chinese face some big problems of their own.

[David Jay]

Things shift around over the years, the British Pound was the world's reserve currency until World War II and the US Dollar took its place. After that and the shedding of the British Empire, the Pound is still a strong currency and the United Kingdom still has a very productive economy. UK living standards are still high. So it isn't like a possible loss of reserve currency status will be the end of the world for us.

The aftermath of the 2008-2009 financial crisis was actually good for the U.S. Dollar, pretty much the United States was the least dirty shirt in the laundry hamper. I think China would like the role that the U.S. has played but the Chinese face some big problems of their own.

The RMB is still not fully and freely convertible, so it is unlikely that the RMB could replace the dollar in the near term.

[Ramjet]

Just wanted to point out that there was another suggested article on that page about inflation which I thought was interesting as well

[secondopinion]

I usually cringe and say no thanks whenever entropy is trundled out in a non-physics context.

Data compression is another topic that uses entropy; markets are another topic, but not in the way presented. High entropy in the markets would lend itself to never market time as no patterns exist (or else the entropy would be lower). Entropy does not equal having "breaking points"; the reasoning is flawed as a result.

Just hold what makes sense risk tolerance- and capacity-wise, and leave the entropy of the markets alone.

[Beensabu]

LOL. Wow. Most of these responses are... interesting...

Things shift around over the years, the British Pound was the world's reserve currency until World War II and the US Dollar took its place. After that and the shedding of the British Empire, the Pound is still a strong currency and the United Kingdom still has a very productive economy. UK living standards are still high. So it isn't like a possible loss of reserve currency status will be the end of the world for us.

Yup. The article explains the difference between when the pound was reserve currency and how the current reserve currency system works. It also posits that losing "the" reserve currency status (and just being "one" of several) might actually be a good thing for the US. You can skip the cryptocurrency part at the end, but the rest of it is a great read.

The aftermath of the 2008-2009 financial crisis was actually good for the U.S. Dollar, pretty much the United States was the least dirty shirt in the laundry hamper.

Yup. The article explains why that was as well.

I think China would like the role that the U.S. has played but the Chinese face some big problems of their own.

Probably not. The game they're playing is working out better for them then that role would.

[Croissant]

thanks for the share OP, definitely worth the read. so she suggest international equities/REIT and gold/bitcoin.

Just wanted to point out that there was another suggested article on that page about inflation which I thought was interesting as well

I second this. her article on inflation is like the first result in my search engine, and i found it to very very persuasive and informative.

I don't know why news letter subscriptions are worth the time time of someone with this level of understanding of the economy (based on her writings). maybe she's hedging her crystal ball with subscription income

[smby]

US GDP as of last year is 24.5% of world gdp not 20%

[nedsaid]

The article makes the case to me for Foreign stocks, hard assets, commodities, and (gulp) gold.

[Williams57]

I have been seeing more and more articles lately emphasizing world dominance shifting from the US to Asia. I don't know and can't explain whether it has a direct correlation with US vs ex-US yield differences, but intuitively I would think so.

On the other hand, if American companies have most of their revenues from outside the US, how does that affect the returns?

Also, seems that there is a big difference between GDP % and stock market share % for the US. Like by a factor of 2+.

[novolog]

Thank you for posting this article, I enjoyed

[JoMoney]

Sounds like the same kind of thing Peter Schiff and Marc "Dr.Doom" Faber are always peddling (for decades).

[MBB_Boy]

Really enjoyed that read, and shared it on. Thanks!

[NoRegret]

https://www.lynalden.com/fraying-petrod ... m/#summary

Summary:

"The world goes through periods of geopolitical order and disorder, and with that, comes the construction and subsequent fraying of the global monetary system each time.

More troublesome, the inherent flaw of having the global reserve currency, in a theme that goes back to economist Robert Triffin from over half a century ago, is that in order to maintain the global reserve currency, the country must supply the world with its currency via structural deficits in one form or another.

[content in excess of copyright fair use removed by admin LadyGeek]

This was a strong reminder to me to have a balanced equity position re domestic vs international


Thoughts and takeways from reading this piece?

So curious to see your boglehead opinions

She's a superstar on FinTwit and Youtube. IMO she wiped the floor w/ Brent Johnson (of dollar milk theory fame). He's a good sport though.

You might also enjoy this week's MacroVoices pod w/ Luke Gromen.

[MP173]

She is very good. A bit over my head but she makes it easy for me to understand when I slow down.

Ed

[LadyGeek]

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