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A CANDID VIEW OF THE WORLD

The world is a mess. We all hear about the regional conflicts, ISIS atrocities, the encroachment in the Ukraine and South China Sea, but the real damage brought by chaotic global conditions is to the human soul. The hope, expectations, and happiness that can only come with freedom is waning and turning to despair, as personal freedoms, religious freedoms, and economic freedoms are being taken away from individuals and displaced with big government solutions. This is a global trend and serves to explain the frustration, angst, and insecurity that is common to most people today.

In order to come up with solutions, or an endurable investment strategy, we must first understand the causes of this malaise. We believe the root cause is the practice of over-promising and under-delivering by leaders. Since World War II, leaders have preached the positives of government “investment” and service in bringing citizens to a higher standard of living. These efforts have been led by massive expenditures (all borrowed money) and for a generation, the faults and frailties of these efforts have been masked by a positive demographic wave that provided the engine for the economic growth around of the world. These demographics have changed, making growth even more difficult. At the end of the day, economic booms and bull markets manage to hide even the most bankrupt of schemes.

Along the way there were occasional danger signs and abrupt failures bought on by over-indulgence and leverage, or simply imprudent risk taking. In the U.S. we sailed through the Continental Illinois Bank crisis, the Penn Central collapse, the General Motors and Chrysler bankruptcies, the housing crisis and many others. Each time, these failures were met with a helping hand from government. Each time, the price tag increased, but our leaders were increasingly reluctant to let these failures put an end to the game.

The RTC solution, however, accepting a real estate price collapse, along with failed loans, was the only exception. Properties were sold off to the public and not covered up with taxpayer monies. Our system absorbed the problem and put it behind us.

We now are faced with a world awash in debt ($230-$250 trillion) and no economic growth. Without growth, there is insufficient cash flow to service this debt and make good on promises.

Clearly, the lack of economic growth has become a dilemma and a serious problem for most governments. In an attempt to stop an economic correction, or prevent a failure, Central Bankers have resorted to printing money, propping up the stock market with government funds and lowering interest rates. In fact, interest rates have become negative in most countries around the world in an effort to stimulate investing.

These negative rates eventually will cause a contraction in the respective banking systems and subsequent deflation. Clearly, these policies are not working and the longer it takes to adopt sound policies, the more difficult it will be to create the necessary economic growth.

With $230+ trillion in debt and no growth, or perhaps negative growth, we’re almost certain to see larger scale defaults and failures.

Americans must choose to change economic policies and move to a pro-growth agenda, otherwise the world will become a more difficult place. While we can create investment strategies to fit almost any environment, we admit that some forms of risk taking are more comfortable than others.

About the Author


Harlan J. Cadinha
Founder, Chairman and Chief Strategist
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