 Good day, fellow investors! Everything is going well, everybody is employed, everybody has money, everybody is happy and nobody sees any cloud at the horizon. However, the economy has always been cyclical and will always be cyclical. Therefore, it is very important to see where we are in the cycle, understand that, prepare, position yourself accordingly in order to limit your risks and increase your long-term rewards. That's the key to investing. If we take a look at 20-year annualized investors' returns on average, we can see here that calculated by JP Morgan, the average investor has had returns of 2.3% per year in the last 20 years. That was just enough to beat inflation, so practically no real return. Everything else has done better. Homes, oil, Europe, Australia and the far east developed markets, bonds, golds, 40-60 stock to bond, 60-40 stocks to bond, SAP 500 and REITs. Everything has done better than the average investor. Now, why is that? Because first, the average investor looks from a fixed perspective, they don't look at how the economy changed and they do everything at the wrong moment. They invest in stocks now because the SAP 500 is strong, the risks is low and every other asset is giving low yields. So they push their investment heavily into stocks now, instead of doing that in 2009, where everybody was selling stocks. So that's one error, how you don't get to where you go. And investing now in stocks is very, very risky because we are in the late part of the debt business cycle, economic cycle, which is very natural. We're going to discuss Delio's view on his debt cycle. He just published a relinquishing article over. I'm going to go a little bit deeper into and then we're going to discuss what are the risks and how to position one's portfolio. Let's start. Ray Delio just wrote a very interesting article on LinkedIn discussing where we are now. The economy is doing very well, people are complacent, but what's the problem here? There is the actual production of the economy and there is what the economy can produce from its potential. Whenever the demand for products grows faster than the capacity the economy has to produce those products, then the economy passes its limits with the result of inflation. We have already seen higher inflation, higher wages and prices of constrained capital goods will also go higher because everything that's limited will see higher demand and fixed supply, which means higher prices. Those higher prices will do well for those who are selling those things, for those who are working. The unemployment rate is very low. It's very hard to find new employees all across the world, even in Europe, even if the unemployment rate in Europe is much higher, it's an average. If you look at a city in Eastern Europe and in the Netherlands, the center of the Netherlands, in the center of the Netherlands, it's hard to find somebody to work. However, in that city in Eastern Europe, there is no work. So, there is a disparity in statistical numbers. Be careful for that. So, Europe is at its limits, so is the US. If we take another look at the chart from real gross domestic product and the potential gross domestic product, you can see here how the real gross domestic product usually fluctuates around the potential. However, every time it reaches the potential and even crosses a little bit the potential product, the consequence is a recession, sooner or later. What happens when an economy operates at full capacity, prices increase, which forces a central bank to tighten its monetary policy by increasing interest rates to keep inflation stable? And you can see here that whenever the Fed started increasing interest rates sooner or later, there was a recession. So, even Ray Dalio says that there are higher risks for a recession in the next few years. Higher interest rates means that the debt burden that has been accumulated in the growing part of the cycle will start to weight on people, on businesses, on governments, and will also increase costs. Limited supply of labor will also increase wages, which will put weight eventually on earnings, will lower new investments, because suddenly the cost of capital is higher, which means that new investments have to reach higher profitability in a saturated economy that's again difficult. So, where are we now in the business cycle? We are in the late part of the cycle, but what's the problem? The problem is always timing. You never know whether a recession will start two years ago today or in two, three years. And there are other projects that are coming online that are further stimulating the economy. We have seen the tax bill that is there to stimulate the economy to have higher earnings to companies that they will do more buybacks, invest more, supposedly invest more, there is not much to invest. There is also now the new infrastructure project that is supposed to invest 200 billion to spur 1.5 trillion of infrastructure investments. As what Trump says, we build new roads, bridges, highways, railways, and waterways all across our land. And we will do it with American heart, American hands, and American grit. He forgot about American debt and higher interest rates, which will make all those projects much, much more expensive. And we have already seen the interest rates as the government is in deficits because of all the stimulation, there is a higher supply of treasuries, which pushes interest rates higher in addition to the fat rising interest rates. So it's a very, very tricky situation, which we will see where it will end. It's impossible practically to predict, at least for common mortals. Nevertheless, we have to know we are in the late part of the cycle. And we have already seen the first repercussions on asset prices. If you look at the 7 to 10 year treasury ETF, it's down 11% since its June 2016 peak. And the bond bear market continues to decline. The yield to the 10 year treasury is approaching 3%, which means that it will start eventually put pressures also on stocks, because if you have an earnings yield on stocks of 4%, and a 10 year treasury yielding 3%, suddenly the 10 year treasury looks much more attractive than stocks. Nevertheless, people expect much higher interest rates in the future. Therefore, they're not rushing into buying treasuries because they expect even lower prices of treasuries. However, at some point there will be risk rebalancing, and people will start selling stocks to buy more of those treasuries, especially as the interest rates increase. So it's always difficult to time, but if you look from a broad perspective, long term perspective, you know what will happen. And that's the most important thing for your portfolio. So to conclude this video, it seems that the correction has passed, stocks are doing well again. However, the higher interest rates will put pressure on some components of the market, of businesses, of the economy. That will then slowly put pressure on other components. And then we will see a normal economic cycle and normal economic downturn unravel. So if you look smartly now, you will find those sectors, those companies that will be immediately put under pressure that the growth in the economy won't be enough for them to refinance with the higher interest rates and survive. So I will be looking at such companies to see, okay, which ones will be the first to fall and then we'll look later how to protect ourselves in order to see which one will be the last to fall. Also we'll look at investments that will work oppositely or will improve their earnings. As I said, the limited supply goods that will see higher increases and prices. So for example, look at what happened to Rio Tinto. Now in this part of the cycle, everybody's crazy about commodities and the stock just keeps going up. Just two years ago, nobody wanted Rio Tinto because everybody was afraid of a Chinese slowdown. So it's very interesting how the market moves, what we have to be smart in the long term, don't take too much risk for limited returns. And that's the key to long-term investing, that's the key to beating the market in the long term. And of course, looking at what's going on and positioning yourself accordingly. When I say position, balancing your risks accordingly. Keep watching the channel. There will be plenty more with the goal being to lower your risk and increase your returns. Thank you for watching. I'll see you in the next video. Looking forward to your comments, your ideas, questions, whatever I can help or you can help me. Thank you.