Household equity exposure has rarely been as high as it is today. Is that a good thing or a bad thing?
Historically, the higher household stock exposure is, the lower the 10-year forward returns tend to be. In fact, the 25% demarcation heading into the 2000 stock bubble led to negative annualized returns over the next decade (2000-2009).
Granted, the 2020 stock bubble has advantages that the 2000 stock bubble did not. In particular, today’s stock market has an unprecedented amount of monetary policy stimulus from the Federal Reserve to play with. For that matter, additional trillions in fiscal stimulus from the federal government is also in the works.
On the flip side, will the orgiastic debt-spending be enough to overcome the tightening of credit at financial institutions? Banks have not been this unwilling to lend to businesses and consumers since the 2008 Great Recession.
In truth, the central bank of the United States (a.k.a. “the Fed”) may be able to create digital dollars to prop up stocks and bonds in the near-term. It can also continue to manipulate interest rates to levels that increase the prospect of a real estate frenzy.
Yet, going forward, these bubbles become more and more susceptible to the slightest recessionary pricks. Similarly, existing hyper-valuation makes it difficult for seasoned pros to hold on, rather than to “sell higher” and “buy lower” at bargain prices in the future.
One thing is for certain: With the Fed foolishly increasing the money supply to preposterous heights, precious metals have rarely looked as attractive. Gold has already been one of the top performers of 2020.
But what about silver? Year-to-date gains of 28% notwithstanding, its recent pullback is a likely “buy-the-dip” opportunity. The money supply is trillions upon trillions more than it was back in 2011, yet the price of the iShares Silver Trust (SLV) would need to gain 100% or more to recover those levels. Compared the money supply, then, it could easily surpass 2011 records.