August 2018 - Summary -

Millennials are the first generation to earn less than their parents. This will affect everything from buying their first house, getting their first car, all the way to deciding whether to have 1 or 2 kids, or no kids at all. All of these decisions (or actually non-decisions) impact the economy in a negative way and might create a “lost generation”.

Baby boomers are still leaving the job market in droves, going on their well-deserved retirement. This shift can be clearly seen in the all-time lows in unemployment rates, which is a good thing for millennials. The bad thing is that the labor force participation rate has also gone down, from 67% in 2002, to 63% now. This means that less workers have to pay welfare and pensions for more citizens.
The companies that these millennials work for have amassed record amounts of debt, which has not resulted in higher wages. It has only benefited shareholders; corporate profits distributed to shareholders went from 33% in the 70`s, to more than 70% in the past decade. It pays to be a shareholder!
The downside however is that all this corporate debt eventually has to be paid back, and although the past years have shown record low interest rates, the future rates will be reverting to the mean, which will result in mass defaults.

If you`re a mine operator, chances are that you`re already close to defaulting; most mines are currently operating at a loss, due to the declining commodity prices. This sector has been going through an extremely rough period, despite all the claims from “experts” that populations and incomes are growing, and that commodity prices will rise along with them.

I see a long bottoming process taking place, especially in metals, and expect the prices to rise again soon. Technology has assisted us in finding new resources, and ingenuity has assisted us in removing the need for certain commodities, but eventually the supply of all these commodities is finite, and demand will certainly catch up.
The U.S. stock markets have been on a tear over the past decade, and all signals point to a slowdown in the future. You can already see the dividend yields dipping below the 3-month Treasury bills, which is a strong indication that investors will likely take a step back soon. When looking at the global stock market capitalization compared to world GDP, it becomes clear that not only the U.S. is in bubbly territory, but all the largest stock markets in the world.

Stock markets are a reflection of a nation`s economic health, and this is greatly visible in countries like Turkey, where both the currency and stock market have taken a plunge. Turkey`s debt is mostly denominated in U.S. Dollars, which becomes a problem now that the U.S. Federal Reserve is tightening their balance sheet and lowering the supply of U.S. Dollars, consequently increasing the price of it.

Thank you for reading, and don`t forget to stay positive!

Robbert-John Sjollema

The information contained in this publication is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions expressed in this publication is that of the publisher and is subject to change without notice. The information in this publication may become outdated and there is no obligation to update any such information.