Investing During a Slow-Motion Train Wreck

If you haven’t noticed, the world has gone mad. Well, madder than usual, anyway.

Global power structures are shifting. Proxy wars are back with a vengeance, as seen in Ukraine, Syria and elsewhere.

Growth is slowing. Nationalism is rising.

Financial markets, meanwhile, are a hot mess. This chart showing the rise of negative-yielding government bonds speaks volumes.

020516_bonds

That’s $5.5 trillion in bonds that investors must pay to own! Central bankers are once again up to no good. (You could say they never truly stopped.)

Legendary investor Bill Gross summed it up in his February Investment Outlook:

They all seem to believe that there is an interest rate SO LOW that resultant financial market wealth will ultimately spill over into the real economy. I have long argued against that logic and won’t reiterate the negative aspects of low yields and financial repression in this Outlook. What I will commonsensically ask is “How successful have they been so far?” (Emphasis mine.)

Not very successful at all, Mr. Gross.

Another outspoken voice in the financial community, Marc Faber, recently critiqued the Federal Reserve more bluntly…

We all agree on one thing, that the market economy functions best because the opposite is socialism, communism and central planning, which has been a complete failure.

But now democracies have implemented a system that is basically run by a bunch of professors, and they target inflation, they target exchange rates, they target the quantity of money. I mean, is the world crazy to give them so much power?

It’s downright frustrating to watch. These days I have to remind myself to focus on things that are within my power to change. Yet I’m mindful of the larger turmoil because it can provide some guidance when making investment decisions.

Investing in Chaotic Times

What will the future bring? Inflation? Deflation? Stagflation?

Honestly, I don’t know. No one does. But I suspect we’re in for a batch of inflation eventually. Unfortunately, nailing down the time frame is nearly impossible.

What I do know is that in a world changing as fast as this one, there are still excellent opportunities to be found. Chaos opens unique doors, leading to all sorts of different prospects.

One just needs to recognize certain trends and growth catalysts.

For example, take a step back and look at the legal marijuana industry.

States across the country are legalizing a drug with estimated (illegal) sales of $50 billion per year in America alone.

Right now legitimate sales account for only around $2.5 billion annually.

This means if the current trend of legalization continues – and I believe it will – there is a clear path for this industry to grow around 20X or more over the next five to 10 years.

Now that’s an industry I want to invest in.

Year Ahead

I plan on spending a lot of time this year covering what I consider to be “special situation” areas of investment, such as legal marijuana.

I believe these niches will be key to finding alpha during these strange economic times.

Next week I’ll talk about another one of my favorite areas to invest in this year: the ill-defined world of artificial intelligence/machine learning. It’s a fascinating field that already affects all of us, every day, in ways we don’t fully realize.

Stay tuned, it should be fun.

Good investing,

Adam Sharp
Founder, Early Investing

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