The New Normal — Our Global Economic Paradigm

The changes in the global economy over the last decade have completely transformed the primary sources of wealth creation. In the 1980s and 1990s, equities, real estate, and bonds drove wealth creation. This millennium’s top asset classes are led by commodities, like gold and oil, emerging markets, and Master Limited Partnership.

Since the 1980 and 1990, when U.S. equities, real estate, and bonds were performance leaders, U.S. equity performance has shifted from the high teens to flat; real estate has entered a secular bear market; and bonds–which have enjoyed a secular decline in inflation–now struggle with inflation, credit quality issues, and unattractive yields.

This decade’s leading asset classes are now producing the types of returns that U.S. equities, real estate, and bonds generated in the 1980s and 1990s. Gold has entered a bull market, in 2001, and risen from $271 to over $1500/troy oz. of gold and returned 19.5% annualized. Oil (West Texas Intermediate) has risen from $12 a barrel in 2002 to over $100 returning an annualized 18.4%. Emerging markets entered a bull market in September 2001 with the MSCI Emerging Market Index appreciating from 251 to 1146 an annualized 16.8% return; and Master Limited Partnerships (MLPs) have returned 16.24% annualized since 1995.

Knowing asset class performance offers limited value in identifying future wealth creation investments. The logical pathway to wealth creation and preservation is to understand the global fundamental factors that drive asset performance. The macroeconomic trends that now drive asset  performance are debt deflation, emerging market growth, and global monetary stimulus.

Debt deflation is the consequence of financially overextended countries, their states, and municipalities, as well as the 25% of U.S. homes which are valued at or below their mortgages. Debt deflation is flipside of a massive debt accumulation which enhanced global economic growth in the last decades of the 20th Century. Now, overleveraged balance sheets are forcing budget cuts, reduced spending, and creating economic headwinds. This condition will last years and is our generational equivalent to the Great Depression. Emerging market growth driven by the transformation of the emerging markets to modern industrial economies will dwarf the influence that baby boomers had on the U.S. economy in the last century. Combined, China and India have a 2.6 billion person population coming into the modern age. The economic consequence of more than 10 times the population of the United States moving into middle class economies will profoundly affect consumer spending, commodity consumption, and investment globally in the decades ahead. Lastly, government fiscal mismanagement is leading to monetary behavior of dubious foresight. The global monetary stimulus from financially overleveraged countries like the United States will likely  contribute to hard asset and commodity inflation, currency revaluation,  and economic instability.

We favor income growth securities which will benefit from these new fundamental economic drivers. Examples of the new growth sectors include certain commodities, like oil, gold, agriculture commodities, natural gas, and industrial metals. The combination of massive monetary stimulous, limited resources, and the massive demographically driven modernization of China, India, and other less developed countries will drive demand for these commodities reversing a multi decade period of commodity price stability or disinflation.

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The information expressed on our website is based upon the interpretation of available data. The data being presented was obtained or derived from sources believed to be accurate, but Tyson Halsey and Income Growth Advisors, LLC

(IGA) cannot and does not guarantee the accuracy of these sources which may be incomplete and/or condensed. The data and information presented is provided for informational purposes only, and is not offered as a basis for trading in securities nor is it offered for that purpose.

Nothing contained herein should be construed as a recommendation to buy or sell any securities.

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