 Good day fellow investors. It's always extremely important to keep an eye on what's going on in the monetary environment, what do central banks do, what are the forces that influence their activities in order to see how to position yourself in the environment. Now the current expectation and what the Fed and the ECB have been saying is that central banks will start to trim their balance sheets. If you look at this figure central banks have really bought lots of assets up till now and it is expected that the Fed starts with selling assets slowly and that the ECB starts to trim their purchases and that we have a total that's around zero from 2019 onwards. So no more impact of central bank asset purchases on the financial system. This is extremely important because the major factor behind the current bull market is central bank activity. Just take a look at this figure and you can see the perfect correlation between the SAP500 and the Federal Reserve balance sheet. In the last year and a half the correlation is a little bit less but don't forget that the ECB and Bank of Japan continue to buy assets. So with the global money flows everything spills over pretty quickly. Now going back to the expectations. Expectations are usually one thing and the reality is something completely different. So I have in my mind three possible scenarios that can happen and I want to be as an investor. I want to be prepared to all of them because I don't know which one will happen. The first scenario is a situation where really what is expected happens. The Fed trims its balance sheet ECB stops buying and the economy continues to go on like it has been going on for the last two three years. Everybody happy. Somehow I don't see that developing because it's very difficult that we continue to have as much credit as we have. Sometimes the leveraging phase has to arrive so even if the Fed and ECB hold their purchases they will soon be forced to start buying again. And let me show you why. This is the US high yield effective yield. This is the yield that companies with junk rating have to pay for their debt. So what the company with junk rating junk rating means that it will go bankrupt if this financial situation environment changes and you can see here that the yield is just 5.7% on average. If that yield starts to increase like it did in 2007 you can see that damage that it makes very quickly. So just a small increase in that yield the damage is terrible. And as 30% of the US corporate bond market is junk the Fed really has to watch this because they cannot allow 30% or 15% or 10% of the market to go bankrupt. So they need to keep interest rates low. Just let me give you a short example. Tesla recently announced the 1.8 billion bond issuance with an interest rate of around 5%. Let me show you what does this mean for Tesla and the company. Now 1.8 billion with an interest rate of 5% leads to interest costs of 900 million per year. If the interest rates which is not impossible for junk bonds increase to 10% then the next refinancing for Tesla new bond issues become very very difficult because it's not 90 million that they have to pay for that money now it's 180 million and 90 million more is very much for Tesla and such pressure could quickly make companies like Tesla go bankrupt because nobody wants to refinance them because they know that the company cannot pay such high yields and then the company goes bankrupt. Also the problem is if the treasury rates come to 5% and we have inflation at 3% nobody will lend to high yields at 5% they will expect 8, 9, 10%. So therefore the future is very very uncertain and the only possibility for the Fed to keep things as is is to keep interest rates low. If interest rates go higher then we are doomed. And this leads me to the second scenario that is that the Fed and the ECB as they have said that they will do whatever it takes to keep the financial system stable. Whatever it takes means more money, more asset purchases, more money printing that's inevitable. What's very interesting just look at how the yield in junk bonds spiked last week thanks to the North Korea fears. This might look a small spike you see the instability of the such but you see the instability of that market. A spike like that is very very telling and we are just talking about North Korea nothing has happened yet. So imagine if something really happens in the world and the world is so big everything can happen anytime then those yields would really shoot up and create a chain of bankruptcies that would be disastrous for the economy. So the Fed cannot allow higher interest rates. This could only lead to more money printing and then you have to always see you can print money as long as you can balance inflation. So that's the third scenario I want to discuss and that's an inflationary scenario. And if inflation comes you cannot lower interest rates you cannot print that much money without hyperinflation and the only way to solve that issue is painful deleveraging what voclab did in the 1980s. So that's something that nobody wants because it leads to a period of pain politicians lose their jobs it can lead to social turmoil political turmoil and it's something not nice but eventually you have to do it. If you look at the US public debt and the public debt in relation to GDP how it grew in the last 50 years you can see that we are in a mega credit cycle with smaller credit cycles in between. So this mega credit cycle will have to be trimmed and deleveraged at some point. Ray Dalio uses to mention a beautiful deleveraging where everything goes smoothly but the world is so interconnected now so everything is depending on something else who the fuck knew what Iceland was before 2007 then it went bankrupt and then the chain sent everything else into bankruptcy because if you have such a shaky weak chain then everything else is in danger. To conclude we have three scenarios situation as expected situation where the Fed prints more money and situation where we have inflation. All this free lead to a no weather portfolio where you have to really be careful what you are doing. I'll be preparing an all weather video how to actually make an all weather portfolio in this environment it takes a little bit time to do so so please subscribe in order to get notified and see the video in your feed when such video is made. Thank you for watching click like if you like the content leave your comments below ask questions I'm happy to share what I know I'm happy to learn from you let's create a community of investors where we share our views especially if you disagree with me I can learn the most from you who disagree with me. Thank you for watching and I'll see you in the next video.