 Good day, fellow investors! Last week we discussed a lot of companies' earnings and put them into a long-term investing perspective. As I promised in this video, we will discuss the current macroeconomic perspective, especially focused on the Fed's shift in gears. So the Fed capitulated what does that mean for your investing style, for your portfolio and for the long-term perspective on stocks. I'll explain how we are probably going for a currency collapse. It's inevitable. It might happen sooner or later, nobody knows, but that's something to keep in mind when investing. The economy might collapse, might not collapse. It will be ups and downs, as it is always the case with the economy. However, on stocks, and that's the third pillar of today's discussion, stocks might not crash, so it might be actually the opposite that happens. However, there will be big differences there between great businesses and not so great businesses, which is something that one has to keep in mind. Before we start, I wish to thank you all for the great reviews on Amazon that I have been receiving for my book, Modern Value Investing. We are in the company of greatness on Amazon, on Amazon's bestseller lists. We have Nobel Prize winners like Schiller, legendary investors like Lynch and great trading books like Market Wizards selling at the same rate as the Modern Value Investing. So thank you, thank you for your support. Now, let's start with the news. The key piece of information that came out in the last few weeks was that the Fed has shifted gears. Practically, we can say the Fed capitulated under the pressure of higher interest rates. Everybody was against it from politicians. The economy started slowing down globally, and then the Fed said, okay, we're going to pause. The Federal Committee decided to be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes. Then they finished with they are prepared to adjust any of the details for completing balance sheet normalization in light of economic and financial developments. Prior to the Fed's change in heart, there was this expectation that we are in for a global slowdown. After the Fed changed its rhetoric, said they will pause to keep the economy up. Stocks rallied after the bad end of the previous year. Stocks are the best January in the last 40 years. They are up 7% year to date in a big counterbalance to what happened over the last three months of 2018. So it's very interesting how things change quickly on the stock market. However, the key is that a 15% decline in the S&P 500 over the last quarter of 2018 and just the 100 basis points, 1% increase on the cost of borrowing for the US government led the Fed to stop with higher rates. The US five year treasury went from 1.6 the cost the yield for the government to the current 2.8 touched 3% and it's already much lower now. So the Fed capitulating means that the economy isn't doing good at all because it cannot sustain higher interest rates. We can see here that over the last 40 years the Fed would stop hiking constantly at lower lower rates. It is probable that the Fed just stopped hiking at an effective federal funds rate of just 2%. It was 5% before the 2007 crisis, around 7% before 2006%, 1990 something and around 10% before the 1990s. So we are constantly seeing lower lower interest rates and that is because the economy cannot sustain higher interest rates because of extremely high debt burdens. For example corporate debt in the US has almost doubled over the last 10 years. The situation is similar across the globe. Low interest rates of course you are going to borrow with low interest rates and then you have a big burden when interest rates start to go up. Governments are also too leveraged, budget deficits are piling all over the place. For example in the US even if the economy is doing good the budget deficits are increasing. Same situation across most of the modern world. Now if you increase interest rates then all the indebted corporations and government have higher interest payments and have higher debt refinancing costs and that's something simply unsustainable if there is a huge debt burden like we have seen for corporations and governments. Given that the central banks, the Fed, the ECB, the Bank of Japan have seen that they can help the economy by just simply printing money by expanding the balance sheets as soon as the economy starts showing signs of slowing down they will jump in and do again the same that did really well over the last 10 years. However the question is whether that is sustainable because we are already seeing the economy slowing down no matter the extremely low interest rates over the last 10 years. Truck orders have plunged over the last quarter indicating that the situation is not that good and that the previous transportation good might have been a bubble. We'll see what comes out of that but countries like Italy are now in a recession so two economic quarters of economic decline. Germany also worst growth in 5 years for 2018 so very bad data from Germany slowing down and as the world slows down then everything is connected everything should slow down. Germany manufacturing orders down 7% which is the lowest for about 5, 6, 7 years since 2012 and the last European recession. My conclusion is that there will be no more tightening there will be no more normalization because over the last 10 years politicians central bankers they are all high on low interest rates. Of course if you can borrow for 0, 1%, 2% if you can get free money it's like a junkie on drugs you get free money you can do whatever you want and there is no cost attached now in the future there will be. So as you have a situation with free money everybody gets high on that and even the most powerful persons it's incredible that with a very strong dollar and virtually no inflation the outside world blowing up around us Paris is burning and China way down the Fed is even considering yet another interest rate hike. Take the victory so when you have politicians like this pushing on the Fed not to raise interest rates anymore you know what is the situation. However we have to put this into a long-term investing perspective what to expect what to be prepared for and where to put our money. So let's see about that. The first situation is that there will be more and more and more money printing. The last recessions unveil the tool that hadn't been really used before it unveiled the possibility to use central banks balance sheet to help the economy. Before 2009 central banks balance sheets had been mostly flat and stable. After 2009 an explosion of money printing is what followed. We have already seen governments went on a landing spree corporations went on a landing spree and the key factor there is that no one that borrows money a corporation a government has the intention to ever repay that debt that's something crucial to understand you have to pay back your mortgage governments and corporations they have no intention to pay back the debt the only interest they have is to service the debt by paying the interest rate and then refinance again that's easily done when the interest rates are low but very difficult when the interest rates are high because your debt burden might bring you in trouble. This is the federal government current expenditures for interest payments the blue line and you can see that from the 1990s the cost of the US government debt that exploded in the meantime didn't go up because the red line the interest rates the yield on the treasury went just down so that was the stabilizing fact factor for US government that were declining interest rates however interest rates hit almost zero and you cannot go lower than zero thus interest rates at some point have to go up however just look at what the 1% increase in the five-year treasury did to the interest payment burden for the US government so from stable in a range of 300 billion to 400 billion in the last few years it exploded to above 500 550 billion at the moment so just the 1% increase in interest rates imagine what would a free 4% increase in interest rates do to the US government interest payment not the debt the interest payment so when somebody has to borrow money just to pay the interest we have seen the interest cost is now 550 billion the budget deficit is 800 billion 1 billion 1 trillion so when the entity has to borrow just to pay the interest then that is usually something called a Ponzi scheme because when you have to borrow more just to pay the interest so you're not borrowing for economic benefits you are not borrowing for infrastructure for investments in education for increased productivity you are borrowing to pay the interest as that interest rates increases you know you are in a Ponzi scheme because you're just borrowing more and then increasing the problem which is that when that happens you know that down the line the situation doesn't look good the solution is very simple currency collapse you just let the currency be destroyed be worthless and that's something we have to be prepared because they are keeping interest rates low they will print they will do whatever it needs they will not contract the balance sheet the Fed's balance sheet so they will inflate the globe with cheap worthless currency which means that we have to stay protected against a currency collapse first later we can think about an economic collapse that might or not might might not happen and then about stocks crashing or stocks exploding we'll see about that now so the first thing you have to do is not to be a long-term debt owner because those are the suckers short-term debt is okay like Buffett has short-term treasuries because that usually saves you from inflation if inflation is 2% the yield on the treasury will be 2.5% on the long-term debt if you buy long-term debt for the long-term then you are the sucker because with the currency collapse after 10 20 years what you get back will be constantly worth less less less less and less and if there is inflation in the 1970s bonds were called certificates of confiscation so all those that had bonds most of them lost money over the long term you can bet on short-term bond movements lower interest rates etc but that's betting that's not investing for example if you take a normal diversified safe portfolio like my friend here that I analyzed in a video the US fixed income exposure was 48.50% by an investment bank managed for safety 48.50% of something that might be worthless over the next five to ten years is something extremely risky further any other pension fund in the world will be in trouble too while working in the Netherlands I had a pension fund ABP where the top investments are you guess it government bonds of course and the top investment is the French Republic France United States second Germany Great Britain Italy etc so what is the protection the protection is stocks might do actually very well as everybody will flood the market with liquidity the economy might do well those that have a mortgage might be very very happy if there is inflation and stocks over the long term they will be ups and downs there will be crashes there will be volatility but good businesses with low costs and that can transfer their costs to the customer will do well because the world will continue to spin if we look at the situation in Argentina you thought the SAP 500 did well over the last 10 15 years well look at the Argentinian stock market index it increased what 17 times however the Argentinian Peso did almost the opposite against the dollar so it's down 12 times nevertheless as there is more printing somewhere down the road there will be a currency collapse it might be chipped off little by little year by year and then we might have a big crash 10 20 percent inflation etc but that's something we have to focus on over the long term because short-term trade etc that's just noise budget noise the debt is the big elephant in the room and we have to focus on that and prepare carefully stocks especially great businesses and that's what I'm completely focused now to find great businesses I like to find great businesses cheap that are a margin of safety investment in commodities at the moment I find them the risk reward very positive there so that's one idea to be prepared so but again when I look at commodity sector I will make some videos about zinc miners over the next week so please subscribe to the channel then I see okay I need to look at 100 of them and maybe one of them is a good buy secondly if you don't want to dig deeper into commodities which is a complex thing you can buy great businesses and tomorrow we are going to analyze Disney which is a great business and you can see okay what can I expect from Disney in tomorrow's video so please again subscribe for that and the general message is the world will continue spinning we will continue living you will continue watching this YouTube channel reading books whatever you have been doing until now but the currency will be sacrificed and a great example to show that is Italy and stamps postal stamps things that you would put on a letter a long long time ago when we older people were still living let me show you in 1958 the normal Italian stamp was 25 lira 1998 the right one the normal Italian stamp was 800 lira so a 32 time increase in 40 years the current price is 0.95 euros that's almost 2000 lira so over the last 60 years the price of sending a letter in Italy has increased 100 times so that is what I call a currency collapse a currency sacrifice however Italy is still incurring in debt people are still lending money to Italy but that's the problem of those suckers that are doing that so tomorrow Disney Sunday we continue with insights from Warren Buffett letters to shareholders and then from Monday Tuesday I have a lot of material on zinc zinc miners Glencore Anglo-American and I'll try to put them into a valuable perspective for you and don't forget I'm launching my newsletter with a weekly overview of the articles of the content of the research that I do so please subscribe to my newsletter and you can find the link on my blog below in the description of the video thank you for watching looking forward to comments and I'll see you in the next video