As we enter the second half of 2018, a few things are very concerning to us. For starters, we believe we are dealing with yet another central bank induced bubble, this time affecting nearly all asset classes. Someone termed this the “everything bubble” or “central bank bubble” and we couldn’t agree more. US stocks, housing in many cities, and bonds are all over valued.
The unfortunate part of this bubble is that there are scant alternatives to consider that may earn a decent return. Back in the late 90’s tech bubble, certain assets looked pretty good (e.g. REIT’s and small value stocks).
Today, there is no such luck. Emerging market stocks and foreign developed markets look reasonable relative to US shares but they are not actually all that attractive on an absolute basis.
None of this should be considered a timing call for what comes next. The market could easily climb to higher levels. Bubbles can keep blowing for a long time and get bigger than most imagine is possible. Still, understanding that stocks trading with low dividend yields and high prices relative to every reasonable metric is something to be cognizant of. In today’s environment, stocks should be rented not owned.
Our Other Concern – The Broken Monetary System
The global monetary system is in drastic need of an overhaul. Currently, the US dollar is the world’s reserve currency. As such, we send dollars out to the world in exchange for stuff.
This worked fine for awhile but it won’t continue. It is simply unsustainable and most of the parties involved need it to change. From what we are reading, it appears that other nations are preparing for such an event. We believe it will happen sooner rather than later.
(If you’d like to learn more, we suggest this excellent article by economist Michael Lebowitz.)
Unfortunately, it is hard to know the ramifications of a monetary system change. We believe it may result in a higher gold price and also may be beneficial to stocks while negative for bonds..but no one really knows, us included.