Despite hyper-valuation reminiscent of the 2000 stock bubble, prices continue to set record after puffed-up record. And they show little sign of slowing down or reverting to a longer-term average.

What would happen if stock prices did regress to a mean? The S&P 500 trading near 3800 would find itself closer to 1900 – a 50% loss for large-cap stock portfolios.

Storytellers continue to modify their ‘justification’ for pricing. Prior to the pandemic, four more years of a Trump White House implied new tax cuts and business-friendly deregulation. Then the story shifted to the benefits of divided government. Today? Democratic control of the presidency as well as Congress ensures monumental stimulus payments from here to eternity.

In truth, there’s only one narrative worthy of note. Money printing.

Central banks from the Federal Reserve to the Bank of Japan to the European Central Bank have pushed trillions upon trillions into the global financial system. In so doing, there may be the equivalent of 1.5x as many dollar (dollar equivalents) in the system since March alone.

Think about it. If there are 50% more dollars/euros/yen in existence, and a relatively fixed number of securities, the massive demand overwhelms the stagnant supply. Share price becomes inconsequential.

Granted, buyers will continue to pay illogical and inconceivably high prices to entice sellers to part with their securities for a period. At some point, however, there will not be a ‘greater fool’ who is keen to pay the highest price.

History teaches us that every speculative bubble eventually bursts, and that rapid share price depreciation will injure the last ones holding the bags. Those investors will be the biggest fools of them all.

Not every asset class is unbelievably oversubscribed. In fact, commodities may be on the verge of a major technical breakout.

Considering the enormous increase in the supply of dollars…
Considering there’s too much money chasing a limited amount of goods/services/assets…
Considering central banks have no intention to fight inflation by raising interest rates…

Commodities may offer a phenomenal ‘buy lower’ opportunity. One of the best ways to play it? Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC).


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