Within the current financial system, those who do not use leverage generally lose. Those who leverage too much or too unskillfully and “go over” also lose. But those who leverage moderately and skillfully have been the winners. They enjoy a multi-trillion-dollar annual arbitrage by shorting abundant fiat currency for long durations at low interest rates and using it to buy scarcer business equity or properties. If you don’t play the game as an investor, you usually lose because leverage drives up the valuations for your potential investments.

So, the effectiveness of this global financial Blackjack strategy is likely going to diminish, although entities that already locked their debt in for long durations are potentially in a position to ride the momentum for quite a while longer. The types of investments that worked well during the past four decades are less likely to work quite as well over the next four decades …And in that shifting environment, it’s important to remember that most investments are bad.

So in that environment, from the perspective of a passive outside investor looking to deploy capital, it’s important to either seek out the businesses that have durable competitive advantages (network effects, powerful brands, intangible property, economies of scale, oligopoly participation, and so forth), or to be very sensitive to valuations when buying mediocre companies.

The prior four decades are unlikely to be a good dataset for back-testing and forming strategies that will work for next four decades, because the conditions will likely be quite different.

Additionally, hard monies become a serious alternative once again in this context, and are worth serious consideration for a portfolio slice, because the hurdle rate for stocks to outperform them is high when there are not a lot of tailwinds at the backs of stocks.