Economic factors including growing global debt, peak deficits and an aging demographic are three structural factors that have changed the game for investors, the Fed and Money as we know it.
These factors have forever changed the behavior of major players leaving an investment opportunity set characterized by a major shift not seen since WWII:
Fiscal Dominance
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Definition
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Fiscal Dominance occurs when a government’s fiscal policy overseen by the Treasury, dictates or constrains the actions of its monetary authority, often due to high levels of public debt. In such a situation, the central bank’s primary focus shifts from controlling inflation or stabilizing the economy to financing the government’s debt.
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Implications for
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the Economy
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Increase in the wealth divide between wage earners and asset owners.
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Markets
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Bonds fail to preserve wealth/ buying power.
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Traditional 60/40 fails
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Players
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Fed now in service of the Treasury: The Fed is no longer independent, now has a third mandate, proper market function.
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Asset managers need to scale or fail.
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Fiscal dominance limits Alpha opportunities
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Innovative opportunities like bitcoin are an avenue of differentiation.
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