So far the stock market has benefited from monetary inflation, unfortunately the fundamentals have not kept up. At some point, stock prices need to revert to what their fundamentals can carry without central bank money printing.
There is a quickening of indications that we are near that point even as the bankers fight the market. Seriously, Fed talking heads say the market is tight now that inflation is down. The market is saying the Fed is still loose with the SP500 near an all-time high… and the Fed may cut rates 0.5%.
Guess what else has been hitting all-time highs and is ramping higher. The globally money the central banks can not print out of thin air – gold. It is surging on the idea the Fed is going to go big on rate cuts.
The chart above is constitutional money – gold – priced in world currencies. Invert this chart and you would see what the central banks have done to their currencies to include the dollar. The damage started well prior to 2019 but gold prices were easily suppressed. Not any more.
So if gold instead of the dollar was your yardstick, here are the charts would would be looking at.
US non-sp500 index prices (TSP S fund)
And the SP500 (C fund) to Gold
Again, the funds have done well in the monetary largeness but much of it was valuation expansions over revenue growth.
What about the future?
Somehow stocks will revert to mean valuations which are 50% lower today. It could be flat prices and rising revenue (inflation driven or not), but that has never happened before.
Gold still has reverting to do also. But from a suppressed price, meaning up.
So how do you diversify in the TSP fund offerings? You add gold miner funds (via MF window), you go easy on equities and hold the safe funds (G and F). In brokerages you might go straight gold funds.
I never thought I would make recommendations outside of the TSP 5 fund box. But TSP added a mutual fund window and the only option for diversifying beyond the basic stocks and bonds is in a few mutual funds in under-represented sectors.
I am not a gold bug, I am a central bank bear. I am a geo-political bear based on trends.
Look at the first chart and tell me I’m wrong.
The reckoning so far has been hidden and delayed by monetary recklessness, but it will arrive. Be properly diversified for this secular turning.
Michael Bond
Categories: Perspectives