Investing near the peak of a Big Debt Cycle

Don’t obliterate your savings!

Investing during the peak of a Big Debt Cycle is inherently risky. During the bubble phase before we approach the top, equity prices grow at the fastest rate with easy monetary policy further enabling this growth. If you are invested in market you risk blowing up your entire investment portfolio, if you are not invested and are sitting out, you risk passing up on the incredible gains right before the market drop.

Let’s understand how to maneuvre this incredibly risky time.

Risk In finance risk is measured by volatilty, or how rapidly the price of an asset moves up or down. VIX is an index that measures the volatility in the markets. Higher volatility presents more trading opportunites but brings with it increased risk.

First are we at a Debt cycle bubble? Ray Dalio, a hedge fund manager did indepth research on past debt cycles. His analysis is available for free those interested. Below is set of questions developed by Ray Dalio to identify if we are in a bubble or not, with the last column our current period.

Though we clearly are in a bubble, I would hesitate to say that we have reached the top of the bubble. Historically, the top of the bubble is generally preceeded by a period of tighening monetary policy, a policy that’s known to prick the bubble. At the time of this writing the current and nearterm outlook is easy Monetary policy (aka low interest rates). Based on our undertanding of debt cycles, we conlude that in the near term we are likely to see that explosive growth in equities continue though its hard to pinpoint the exact turning point.

How to invest in this period? Gain the upside potential of rapidly growing equity bubble while limiting the potential downside risk. Minimize the downside risk by limiting allocation of assets in sequrities that are highly correlated with the S&P. Leverage the upside potential exposeing a fraction of your portfolio by utilizing an appropiate derivative instruments

Millenial Gold has positioned a leveraged derivative trade for 1% of its investment portfolio. With an upside potential of 10x and a downside potential of 100%. This assymetry in returns enables the portfolio to safeguard the majority of its portfolio while maintaining the potential of gaining 10% return on the the total portfolio.

See PORTFOLIO for more details on this trade.

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