That’s why Philippe Gijsels, Chief Strategist at BNP Paribas Fortis, wrote the book The New World Economy in 5 Trends with Koen De Leus. We can learn a lot from this as a Quality Investor. Why? We LOVE investing in companies operating in end markets with strong, attractive growth
Pieter, thank you for sharing this fascinating post. I thoroughly enjoyed reading it, particularly the section on the size of government debt.
While I generally lean toward being debt-averse, in my early twenties, I saw firsthand how beneficial it can be to have a fixed-interest loan during periods of high inflation. In such times, inflation worked in favor of those who leveraged up and invested in cash-flow-producing assets, foreign currencies, and precious metals. It’s an observation I always keep in mind.
That said, we should always remember the three "L's" that can lead even a well-off individual to financial ruin: Liquor, ladies and leverage! 😁
I appreciate the book recommendation and will definitely check it out. I Wish you a pleasant afternoon, and look forward to your next post later this week!🙏🙌
While higher inflation could theoretically reduce the real value of existing debt, it also comes with significant risks for both governments and individuals. Central banks aim to control inflation to ensure economic stability. Uncontrolled inflation can lead to negative consequences like reduced purchasing power, higher living costs and potential economic instability. For individuals, having debt, even with a fixed interest rate, is risky. The idea that inflation will "erode" your debt doesn't account for the uncertainties inflation brings, such as the potential for future income insecurity. So, in summary, it was a great interview, but I don't agree with Mr. Gijsels' answer regarding future inflation. That being said, it is much more productive for an investor to focus their efforts on finding quality stocks instead of trying to predict macroeconomic trends.
However, for buying real estate I am a big fan of lending as much as you possible can for as long as you can.
When you can generate 7-9% per year with your investments while the interest you pay on the outstanding debt for your house is substantially lower, it's a win. :)
Regarding debt, I always bear in mind Peter Lynch's quote: "You can't go bankrupt if you don't have any debt." Peter Lynch made this statement primarily in the context of companies. However, the underlying message is also applicable to personal finance. Personally, I strongly believe in avoiding excessive debt for any purpose, whether for companies or individuals, as it is a key factor in ensuring financial stability and security.
The decision to borrow as much as possible for real estate should not be seen as a general rule but rather as a choice that depends on your personal situation. Age, financial stability, having a stable income and the ability to take advantage of tax benefits are all crucial factors that influence this decision.
What may be beneficial for one person can be risky for another. Therefore, it's important to carefully consider whether taking on a high level of debt is wise in your specific situation. Every situation is unique, and what works for one person may not necessarily be the best choice for another.
What a neat interview! Thanks for posting this, Pieter!
There are lots of thought provoking ideas here.
One of the four trends Philippe mentioned is the energy transition. I agree that figuring out this trend will be like unlocking a magic treasure chest. Unfortunately, the lock is big and complicated. Traditional hydrocarbon energy is deeply embedded in developed countries. Think of all the technology, processes, people, and logistics currently in place for extracting, processing, delivering, and burning this fuel. It's massive! Replacing this will happen very slowly. Even if we could replace it then the question becomes what do we replace it with? No one single alternative source can replace hydrocarbons. Even a portfolio of different sources cannot do this. We need a "silver bullet" here that is affordable, easy to deploy, and green. The energy transition is going to take many, many decades. 🤔
I'm not sure I know enough about the trend of people moving toward big cities as part of globalization. My feeling was that remote work enabled people to move out of big cities and into smaller, quieter, and more affordable communities. 🤷
I'd be careful about taking on debt like Philippe mentioned. Sure, borrow at 2% when inflation is 4%. That makes total sense. Or, borrow at 2% when inflation is 2% knowing that it could creep up to 3% or 4% over time. Use the capital you need and invest the rest either in additional real assets, equities, etc. The challenge is maintaining the income to maintain that debt. If you have a large amount of cash saved up that could be drawn from to service that debt then that's good. If your assets can generate a revenue stream to service that debt then that may be acceptable - just make sure the stream is reliable. Otherwise, if you're just a "9 to 5" regular guy trying to make it in the world then you place yourself in a very fragile situation. A job loss or unexpected emergency may threaten your ability to service that debt.
I wouldn't plan on debt as a way to invest and grow wealth. Isn't that what Robert Kiyosaki advocates? Use debt to buy assets that appreciate at a rate higher than your debt? I don't know ... maybe I'm too old school for my age but I don't want to owe anyone anything. Too scary to have that hanging over your head, especially if you have a family. 😱
That said, I think I will order the book! I think it will stimulate more thoughts, even if I don't agree with all of them. 👍
Pieter, thank you for sharing this fascinating post. I thoroughly enjoyed reading it, particularly the section on the size of government debt.
While I generally lean toward being debt-averse, in my early twenties, I saw firsthand how beneficial it can be to have a fixed-interest loan during periods of high inflation. In such times, inflation worked in favor of those who leveraged up and invested in cash-flow-producing assets, foreign currencies, and precious metals. It’s an observation I always keep in mind.
That said, we should always remember the three "L's" that can lead even a well-off individual to financial ruin: Liquor, ladies and leverage! 😁
I appreciate the book recommendation and will definitely check it out. I Wish you a pleasant afternoon, and look forward to your next post later this week!🙏🙌
Liqors, Ladies and Leverage.... Love it!
Have a lovely day, Pavel!
Great article!
Thanks, Schwar!
While higher inflation could theoretically reduce the real value of existing debt, it also comes with significant risks for both governments and individuals. Central banks aim to control inflation to ensure economic stability. Uncontrolled inflation can lead to negative consequences like reduced purchasing power, higher living costs and potential economic instability. For individuals, having debt, even with a fixed interest rate, is risky. The idea that inflation will "erode" your debt doesn't account for the uncertainties inflation brings, such as the potential for future income insecurity. So, in summary, it was a great interview, but I don't agree with Mr. Gijsels' answer regarding future inflation. That being said, it is much more productive for an investor to focus their efforts on finding quality stocks instead of trying to predict macroeconomic trends.
Hi Yves,
I agree with you.
However, for buying real estate I am a big fan of lending as much as you possible can for as long as you can.
When you can generate 7-9% per year with your investments while the interest you pay on the outstanding debt for your house is substantially lower, it's a win. :)
Regarding debt, I always bear in mind Peter Lynch's quote: "You can't go bankrupt if you don't have any debt." Peter Lynch made this statement primarily in the context of companies. However, the underlying message is also applicable to personal finance. Personally, I strongly believe in avoiding excessive debt for any purpose, whether for companies or individuals, as it is a key factor in ensuring financial stability and security.
The decision to borrow as much as possible for real estate should not be seen as a general rule but rather as a choice that depends on your personal situation. Age, financial stability, having a stable income and the ability to take advantage of tax benefits are all crucial factors that influence this decision.
What may be beneficial for one person can be risky for another. Therefore, it's important to carefully consider whether taking on a high level of debt is wise in your specific situation. Every situation is unique, and what works for one person may not necessarily be the best choice for another.
What a neat interview! Thanks for posting this, Pieter!
There are lots of thought provoking ideas here.
One of the four trends Philippe mentioned is the energy transition. I agree that figuring out this trend will be like unlocking a magic treasure chest. Unfortunately, the lock is big and complicated. Traditional hydrocarbon energy is deeply embedded in developed countries. Think of all the technology, processes, people, and logistics currently in place for extracting, processing, delivering, and burning this fuel. It's massive! Replacing this will happen very slowly. Even if we could replace it then the question becomes what do we replace it with? No one single alternative source can replace hydrocarbons. Even a portfolio of different sources cannot do this. We need a "silver bullet" here that is affordable, easy to deploy, and green. The energy transition is going to take many, many decades. 🤔
I'm not sure I know enough about the trend of people moving toward big cities as part of globalization. My feeling was that remote work enabled people to move out of big cities and into smaller, quieter, and more affordable communities. 🤷
I'd be careful about taking on debt like Philippe mentioned. Sure, borrow at 2% when inflation is 4%. That makes total sense. Or, borrow at 2% when inflation is 2% knowing that it could creep up to 3% or 4% over time. Use the capital you need and invest the rest either in additional real assets, equities, etc. The challenge is maintaining the income to maintain that debt. If you have a large amount of cash saved up that could be drawn from to service that debt then that's good. If your assets can generate a revenue stream to service that debt then that may be acceptable - just make sure the stream is reliable. Otherwise, if you're just a "9 to 5" regular guy trying to make it in the world then you place yourself in a very fragile situation. A job loss or unexpected emergency may threaten your ability to service that debt.
I wouldn't plan on debt as a way to invest and grow wealth. Isn't that what Robert Kiyosaki advocates? Use debt to buy assets that appreciate at a rate higher than your debt? I don't know ... maybe I'm too old school for my age but I don't want to owe anyone anything. Too scary to have that hanging over your head, especially if you have a family. 😱
That said, I think I will order the book! I think it will stimulate more thoughts, even if I don't agree with all of them. 👍
A lovely comment as always, Boris!.
I truly appreciate you! I am sure Philippe will love this comment as well. :)