September 2018 - Summary -

This has now been the third newsletter that i`ve written and the content has only become more and more gloomy. Sure, the economies are doing great, we feel great and we earn good money, the engine is running full steam, but what was the fuel that powered this engine over the past 10 years?

For three months i`ve been explaining that debt has been the number one fuel to power up all the economic engines worldwide, but that this is now coming to an end. Will the ride come to a sudden stop? Will it just slow down gradually? This is something I won`t be able to answer with certainty, but the fact that margin debt is at all time highs, proofs that people and businesses are investing with leverage, which is great during upturns, but incredibly damaging during downturns. Margin calls might be accelerating the upcoming downturn at a faster pace than anyone could imagine.

 “Reversion to the mean” are the key words when it comes to the charts that i`ve been showing you. Anything always reverts to its average level, and often shoots below it. Simple math tells you that the amount of time spent above the average, will be just as long as the amount of time spent below the average. Can this amount of time that is spent above the average deviate, and stay higher longer than expected? Definitely. But it is always compensated by a period of time below the average, that is of an equal duration.
I`ll leave you with the below chart from Advisor Perspectives, indicating that we are currently 121% above the trend line and ready for mean reversion!

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 The information in this publication may become outdated and there is no obligation to update any such information.