davidbau.com

Confidence Games

This month I have been re-balancing my retirement savings, but it is a sobering exercise.

If we have money to save, where do we put it today? Let us review the major asset classes.

• The U.S. equity market is overvalued compared to GDP, after 30 years of American unwillingness to use taxes to redistribute wealth towards public prerequisites to growth.
• Fixed income investments are an almost-guaranteed loser, with the Fed poised to raise rates just as we've begun to forget what rising rates feel like.
• International investors are chasing real estate, but real people do not see real value: home ownership is at lows not seen since 1967.
• Europe is a disaster that is easier to recognize on the outside than it must be on the inside, with markets slow to reflect the loss of credibility of German policymakers.
• And who would put their money in China? When an autocracy wants to inflate asset prices, it means you will never be able to get your money back out.

You get the distinct feeling that the wealthy-powerful class in Asia, Europe, and North America have steered capital into their own pockets for so long now that there is a huge imbalance in the distribution of capital in the world.

1. Every asset class globally is experiencing a bubble simultaneously.
2. So much capital has been idled that real economic activity is being starved.

So... if we have money to save, it seems like this situation is of our own making. What the heck are we doing to ourselves?

Where would you invest today?