Own nothing if you want to make money

Tuesday, March 05, 2013 Francisco Carneiro 0 Comments

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We have been bombed with graphs like this. The numbers are big and difficult to understand.

What do i take from here? When you buy something you can pay with your money (no Debt), you can pay later to the seller (you have a debt) or you can borrow from Bank/credit card (you also have a debt)

In the last 20 years we consumed a lot because we either borrow or paid later (The amount of Debt went true the roof). That is the current situation. If we stop borrowing like crazy demand would shrunk and i guess prices would start falling because supply surpasses demand.

The way to balance the world is to create demand with more debt, if you stop the leveraging problem we would have deflation.

How should we react to this situation? 

If the government wants to stop borrowing the stock market (Supply of products) would tank because of lack of demand. 

If you have credits on borrowers that can not pay those credits should not be worth par.

If you live on borrowed money stay the course.

If you have money in the bank don't buy credit and don't buy equities. Both can go up because central banks can print, invest in government paper and the government can keep spending and creating demand for some time. However you know there is something wrong here.

If you have money in the bank what should you do?

To buy hard asset's? they will go down when the demand recedes.

I would bet on owning cash and trading strategies, strategies that you own nothing you only trade and try to profit from big moves and big trends. CTA's are definitely a candidate. Currency funds too (relative prices).