Real Economy vs Narnia Economy

Time is needed when we feel at the point of meltdown. Time is a holy medicine that keeps us on a firm path, with our feet on the ground. Time in writing also demonstrates just that: it’s not “just writing”!

If the reader still does not understand this ability to ‘give time’ and is still eagerly awaiting the “next chapter”, be aware that it is bad for your own life. There is a suggestive phrase that always makes me reflect:

Time is the time you have!

But I also never forget that life is a countdown and I need to identify the best time for everything! Time to think; time to work; time to read; time to write; time to do absolutely nothing!

My moments are necessary and crucial for a good psychological, rational and emotional performance in the face of so much absurd information that I have read while studying. If you haven’t done something like that yet, I suggest getting to know yourself better.

We will start with the latest most relevant data I consider on macro economy: public debt!

Stop fooling yourself and thinking that it doesn’t matter, or that it’s not interesting! This debt is YOURS! The very word ‘public’ clearly indicates who the debtor is: the government; the people! The difference is that the debt is paid by the production capacity of a people, an economy. So, before trying to mistakenly compare Brazil, Venezuela, Suriname and others with the United States and Canada, ask yourself first: what are the general differences in production capacity between underdeveloped and developed countries? It’s obvious! Economic freedom! Productive freedom! Tax cuts! Monetary system! Government Machine!

Therefore, the public debt of countries can be seen reaching – or exceeding – 100% of the countries’ GDP: Gross Domestic Product (generation of wealth for a nation).

Debt/GDP is Chile 33%, Paraguay 33%, Uruguay 73%, Argentina 102%, Mexico 52%, Peru 35%, Brazil 88%, Colombia 63%. Look, if we consider similar countries, we are very close to Argentina!

If the Debt/GDP is 80% this means that it would be necessary for the government to collect 80% of everything that companies and people produce in value during the year to pay off this debt, in other words, debt is equal to 80% of everything that society produces of value every year.

Consequences

Let’s understand this simply. The governments of countries do not generate wealth. They all take wealth from businesses and families through taxes and fees. When governments spend more than they collect it can have some negative consequences like:

  • increase in debt, as they spend more than they constantly collect;
  • increase in taxes so that they can spend more and more;
  • increase in inflation, when the government decides to adopt measures equivalent to “printing money” to pay its debts without generating wealth.

Resolving the problems of a country or a family through debt amounts to pushing the problem to be solved in the future. In the case of a country, it’s like throwing the problem to their children and grandchildren who will have to work harder to pay more taxes to be able to pay the debts that previous governments have made.

The government increases its debt by selling government bonds to people, financial institutions and foreigners who want to earn interest in the future. It is a way of borrowing money from society at present rather than simply borrowing society’s money through taxes. Governments pay their debts by charging more taxes or taking measures equivalent to printing money. In both cases, the cost of living is higher and inflation increases (loss of money purchasing power). To fight inflation, governments tend to raise interest rates.

High interest, high taxes, people and companies with less purchasing power end up harming economic growth and consequently this results in devaluation of company shares, as they earn less, earn less and grow less.

Verifying that the public debt/GDP of the United States surpassed the debt in the period of the great crash, in 1930, makes me a little more apprehensive about the current situation, mainly due to the ‘generation’ factor . The generations of the last 90 years have not gone through any really deep crisis and this determines the behavior of men over these decades. Only in acute crises determines the identity of the future.

The market and the economic cycle do not repeat themselves unintentionally: the feelings of individuals do repeat themselves.

ABOUT INFLATION

Simple graph to demonstrate what I’ve been reporting for two months now: the growing statement by companies throughout 2021 that inflation is affecting their earnings; your profitable margins. This means that there is a high possibility that your profits will stagnate or shrink throughout 2022. As a result, it will affect the entire consumption chain.

PROBABILITIES

By Shiller’s (Dark Blue Line) estimate: absolute valuations alone point to the risk of a correction, but real growth returns strong and low anchors in the short term. According to Shiller’s background, we are entering a prolonged period of recession (market correction) as seen in 2000 and 2008.

Reinforcing: Anchor in the SHORT TERM! For “social media investors”, it’s worth rethinking pointing out any shit to your followers – if have some sense of responsibility.

VALUE’ IS ONE THING, ‘PRICE’ IS ANOTHER

It is clear that markets are underestimating any kind of recession. Just close your eyes and believe that everything is normal, following the great flow. However, the data doesn’t lie: we reached a record level where the S&P 500 (Blue Line) no longer wants to identify cyclical economic adjustments (Black Line). Therefore, they overvalue companies that make up the markets in an absolutely exaggerated way – as if their profitable capacity were infinite, regardless of consumption.

SPEAKING ON CONSUMPTION

A suggestive indicator demonstrates the absurd, incoherent distortion between the tons carried by trucks and the S&P 500 index. You don’t need to be a super economist to realize that there is something historically very wrong between the real economy vs narnia economy (financial markets) that have always walked together.

And don’t give me the raw word: technology. Technology without consumption does nothing to foster a real economy. What’s making the economy weaker these days is ‘money printing’ government aids – purely that. The real reason for the Government benefits are: massive zombification of previously productive individuals.

PRICED TECHNOLOGY SECTOR

If, on the one hand, the technology sector is pricing itself: Price-to-book (B/W) convergence – Stock price according to company accounting.

At the other end, we have the extremely overrated energy sector – compared to the .com bubble of 2000.

Finally, while the American market, mostly represented by the S&P 500, is “distant” from the real world (Dark Blue Line) vs (Light Blue Line), I prefer be cautious in the purchase of assets of value compatible with your actual profits.

The world of narnia, despite MetaVerse, is still unreal.

Make no mistake, the vast majority of the S&P 500 index is being supported by fewer than 100 companies. Most companies have been in decline since March 2020.

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