 Good day, fellow investors. Welcome to the stock market news with a long-term fundamental twist. The two most important pieces of information shared this week were JP Morgan coming out with a report that the next crisis will probably come in 2020 and then Ray Dalio coming out with his book on long-term debt cycles also saying that there is a big probability that the next crisis comes in 2020. So we are now in 2018, two years to go, the seventh inning of this bull market cycle. So what to do? In this video we'll summarize JP Morgan's view. Dalio's view will discuss what Dalio has to say about what to do, how to invest now, what JP Morgan says about how to invest now and what am I personally doing which is a little bit more tending towards Dalio. So let's start with JP Morgan's views, going into Dalio's views and then resolving the most important question what to do now as an investor if we are rushing into the next crisis. The JP Morgan report starts by showing off this 2008 crisis. The reason was of course debt. However, if we look at global debt that has spiked since 2008, especially in developed markets, developed countries have increased their debt to GDP ratios by 41% compared to just a 12 percentage point rise in emerging markets. So emerging markets are a bit more stable than developed markets and that's something also Dalio is pointing out. JP Morgan has a different perspective. Of those governments, the US fiscal budget deficit, so what the government spends more than gets in in 2019 is expected to be at 5.4% of the economy, 5.4%. In Europe if you have above 3% you are already a very very unstable country. But the US government is taking advantage of being the global reserve currency and then you can borrow from everyone around the world. However, they are also risking that position of power, the position of power of the dollar from its global reserve currency perspective. So that's a huge risk for just taking on more debt, more about that later. And now this is a beautiful chart. In 2007 households, as it was a real estate bubble, households were leveraged. The household leverage has declined since the crisis. However, corporate leverage has doubled since the crisis. The corporate leveraged measured in net debt to EBTDA has doubled. It was at 1.2% in 2006-07 and now it is at 2.4%. So the crisis might come from the corporate environment, not from the household this time. And that's exactly how crises come, always from somewhere else. Another beautiful chart from JP Morgan that shows how important a crisis is. Because we might now think that we live well, everything is going on well and that the crisis didn't have an impact. But global growth potential has dropped 0.3% per year thanks to the 2007 crisis. In emerging markets 2%, in developed markets a little bit less 0.3%, but that's a huge blow to the global economy. So just remember that the crisis is painful and repercussions are felt forever. Now a little bit on Dalio why a crisis will happen around 2020 and what's going on. The federal budget is really pushing on those deficits. If you look here, the current 2017 deficit was 665 billion, but it is expected to hit almost 1 trillion in 2019, definitely in 2020 and then the US budget deficit is just expected to grow, grow, grow, grow and grow in the future. This is something pretty much unsustainable and if we look at the expenses of the federal budget, the healthcare program, social security and especially net interest, interest payments on that debt, if interest rates go higher, there will be a funding crisis in the US. So the US government will not have enough money to fund all those obligations, pension, healthcare and repaying the debt so that it will have to issue more and more debt in the form of treasuries. The US people don't have enough money to buy those treasuries so people will, the US will have to ask money from around the world as it is doing now, but you have to increase interest rates to do that, to borrow more, more and more. So Daileo expects the Fed to print money, more money to start from a lower interest rate base than it was the case in 2007. So have less possibility, maneuvering possibility there and Daileo says that there is a high probability for the dollar to fall in value by 30% by 2020 and around 2020 on US government debt funding concerns, which is closely related to what JPM has to say, let's see. Just on the note from JPMorgan, Chairman and CEO Jamie Dimon, we will enter the next crisis with the banking system that is stronger than it has ever been and that's correct, 2007 has repaired the banking system. The trigger to the next crisis will not be the same as the trigger to the last one but there will be another crisis. So don't think that history will not repeat itself, history rhymes but there is something different behind it and in this case it is debt, government debt and liquidity. JPM warns that total ETF assets hit 5 trillion globally up from just 0.8 trillion in 2008 and the ETF force, the same force that pushed stock markets higher is potentially dangerous to stock markets as it will push them lower. As JPM says, however the shift from active to passive and specifically the decline in active value investors reduces the ability of the market to prevent and recover from large drawdowns, large drawdowns. This is Marko Kolanovic, amazing analyst working at JPMorgan. Another thing that is not helping in preventing the large drawdowns is less liquidity. So as said by Dalio, the US government will have to borrow more but US Treasury market liquidity remains roughly two-thirds below pre-crisis levels. So there is less liquidity on the market which means that or you have to somehow spur that liquidity, you have to get to that money to fund your obligations, if not you're going bankrupt and that's something that might raise interest rates, that might make a dollar crisis the next crisis. That's Dalio's warning. JPM is an American bank, they are not allowed to say okay a dollar crisis is ahead, they are just saying a crisis is coming and we'll see what is their prediction, what is Dalio's prediction. So let's start with JPM prediction. Next financial crisis will strike in 2020 and what are they predicting? As a normal financial bank they are predicting nothing dangerous. US stock slide of about 20%, jump in US corporate bond yields premiums of about 1.15% above the Treasury yield. So increasing the risk premium on the highly re-leveraged corporations, 45% tumbling energy prices and 29% slump in base metals, be careful oil and base metal investors, 2.79 percentage point widening and spreads on emerging markets government debt. So they are really pushing for emerging markets, scaring people about emerging markets and 48% sliding emerging markets stocks of course. And a 14.4% drop in emerging currencies. Very interesting because Dalio has an opposite view. So a 30% fall in the value of the US dollar, a slow decline in stocks and longer term grinding in value consequently and we are close to the bottom in emerging markets or at least two thirds of the way to the bottom. So we have two different views here. Dalio is focused on the dollar and how the dollar might devaluate and JPMorgan is more really focused on protecting their business with American investors because if they say it's better to diversify across the world, they will lose what they have been building the last 100 years. So that's very important to keep in mind who is promoting what. Ray Dalio does not need any investors. He doesn't take any investors. So whatever he says, there is not really an agenda behind it. I think JPMorgan has a big agenda behind it because their profits are on the line here. Nevertheless, let's see what each one of them says we should do and then what am I doing. JPMorgan of course the perfect hedge let us sell you more treasuries and then let us sell you more ETFs or investments when we feel that's the best time to do that because they expect that the treasuries will fall interest rates will fall and that those will be the best hedge for a recession as the US government bond index returned 14.3% in 2008. This is opposite of what Dalio is saying because he says that interest rates will go up as the government will have to borrow more to fund all the deficits especially in a recession. So here is an opposite view and one has to be careful about what to do and be hedged also on the JPMorgan hedge. So take what they are doing if your American treasuries will protect your buying power dollars are dollars for Americans if you're not American be hedged on the hedge also if you're American be hedged on that hedge what happens if Dalio is right and the dollar loses 40% of its value think about how to hedge that and that will and that's something you can do with gold miners which are very risky but as a hedge probably will do well in Dalio's scenario. Now on Dalio he says that if you're a passive investor really think about constantly having an old weather portfolio diversifying so it means having a little bit of gold he always says 5 to 8% of portfolio risk exposure to gold can do that by physical gold by gold miners whatever but thinking of being diversified so that whatever happens you always just rebalance across the board there and if you read Tony Robbins' book about finances you have a great interview with Ray Dalio inside where Ray Dalio explains exactly how to do that from let's say I'm not buying individual stocks on the market I just want to be well diversified over time and this is a very good strategy for those who are not really into buying individual stocks and thinking a lot about their portfolio the link for the book in the description below as what I'm doing I'm a very I'm a much more aggressive investor active investor and for us Dalio has a simple message buy when there's blood on the streets and sell when everything is good blood on the streets now there is emerging markets we are researching emerging markets we have done Brazil we have done Argentina we are now looking at China we will look at gold exposure for the protection for the dollar and then we'll come with an old weather portfolio if we have time before the crisis we'll even look for hedges and then we have an old weather alpha pure alpha portfolio to protect us from whatever might come out there so that's what I'm doing researching building slowly that portfolio but that takes time time but fortunately we have time as the crisis will come in 2020 for now I'm 65% in cash in my model portfolio if you want to see more in debt if you want to more information about what I'm doing please check my stock market research platform where we have my stock analysis sector analysis model portfolio that you can see what am I doing with my money and how am I preparing for whatever might come in the future thank you for watching don't forget to watch the most important videos from this week China stock market analysis why to invest in China and then here is the link to Ray Dalio's interview with Bloomberg be sure to watch both videos if you haven't thank you for watching see you in the next video and please comment add value to this thread by adding your valuable comments in the section below or even liking if you like the video see you in the next video