by MN Gordon, Economic Prism:
Welcome to 2022!
The New Year’s edition of the Economic Prism is a place of wild guesses and rough suppositions. Today we focus our eyes through our proprietary prism. We set our sights over a 12 month viewshed. What do we see?
First off, 2022 will be a year where everything under the sun happens precisely as it should. Some good. Some bad. Each day shall unfold before you with symbiotic disharmony. You can bet your bottom bitcoins on it.
But what else?
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Will gold top $3,000 per ounce? Will Beeple sell another digital art medley NFT for $69 million? Will a paper cup full of Starbucks coffee mixed with syrup and milk froth hit $10 before the year’s over?
What about the S&P 500, the yield on the 10-Year Treasury note, and the price of oil?
Will Fed tapering cause a simultaneous tantrum in both the stock and bond markets? Will Fauci finally be run out of Washington on a rail like a 19th century con man? Will China invade Taiwan? Did WWIII just commence in the Ukraine? Are we fated for complete social distortion?
You likely have opinions on these matters. Many people do. The answers to these questions, no doubt, will be revealed in due course. In the meantime, our advice is to trust your gut. Your guesses are better than most.
After a deranged 2021, and with Jen Psaki as White House Press Secretary, anything and everything can happen in 2022 – including a mega collapse!
Thus we’re eschewing a broad range of predictions for the 12 months before us. But not to worry, we won’t leave you empty handed…
Rather, with humility and modesty we’ve zeroed in on one critical – yet hated – opportunity. We offer this opportunity to you here, free of charge, with the sole intention of helping you survive the mega collapse of 2022.
Where to begin…
A look at the S&P 500 is a good place to start. The broad market index just hit a new record high – again! But price is one thing. Does the S&P 500 have the earnings to back it up?
The S&P 500’s current valuation, when compared to its historical valuations going back to 1871, reveals a stock market with significant risks. As of the December 30 market close, the Cyclically Adjusted Price Earnings (CAPE) ratio is 40.09.
That’s over 137 percent higher than the CAPE ratio’s long-term historical average…and well above the 32.56 CAPE ratio reached in September 1929. The only time the CAPE ratio has been higher is for a brief moment at the dot com bubble peak, in December 1999, in the run-up to the new millennium, when it hit 44.19.
Following both of these CAPE ratio peaks – September 1929 and December 1999 – the stock market crashed in spectacular fashion.
In short, based on the current CAPE ratio, the S&P 500 is now well over double the cost of its historical average. The NASDAQ and DJIA are also both at nose bleed levels.
Similarly, the Buffett indicator, which is a ratio of the total market capitalization over gross domestic product, shows that the overall stock market is significantly overvalued. The ratio currently stands at about 209.5 percent. A fairly valued market is a ratio somewhere between 98 and 119 percent. Anything above 141 percent is considered significantly overvalued.
Obviously, the most reliable way to make money in the stock market is to buy low and sell high. Conversely, buying high and selling low is a guaranteed way to lose money. Based on current valuations, buying the major U.S. stock market indexes right now would be buying high.
Perhaps you could buy high and sell higher. But this isn’t an advisable way to invest. Not unless you consider gambling to be investing. Successful long term index fund investing involves buying when the market index is cheap – when the CAPE ratio is below 15 or the Buffett indicator is below 76 percent.
Based on the CAPE ratio and the Buffett indicator, the U.S. stock market is currently significantly overvalued. Moreover, it continues to be propelled dangerously upward by central bank credit pumping; real tightening will not be occurring for quite some time.
Thus, as we commence the New Year, the major U.S. stock market indexes are at risk of a manic blow off top followed by a spectacular crash. This doesn’t mean you should sell all your stocks and go to 100 percent cash. But it does mean that some prudent adjustments to your holdings may be in order.
How to Survive the Mega Collapse of 2022
The fact is, with Bidenflation raging out of control, cash is trash. Bonds are trash too.
What’s more, foolish policies out of Washington are trashing the foundations of economic life and civilized society with unprecedented precision. Here is a partial listing of some of the unintended consequences that government interventions have directly manifested…
Price inflation. Supply chain disruptions. Labor shortages. Energy shortages. Food and fertilizer scarcity. Extreme wealth disparity. Stock, bond, and real estate bubbles. Flash mob smash and grab robberies. And much, Much More…
For these reasons, and many others, 2022 will be the year of the mega collapse. In fact, it’s already happening.
But regardless of how expensive the stock market indexes are, and no matter how delusional investor expectations are for future returns, you must do something with your savings and investment capital.
A stock market crash may or may not be imminent. But a mega collapse of the economy is most definitely in the cards.
What to do…
Gold, without question, is the tried and true form of wealth protection. Paper dollars, debt instruments, dollar based interest and dividend payments, and the whole gamut of paper promises may not be here after the mega collapse. But gold will remain.
To be clear, gold’s not an investment; it doesn’t pay a dividend or interest. Still, it’s far more than just a pet rock, as Buffett asserts.
Gold, specifically, is an anti-investment. It’s a safe haven for wealth. And it’s especially prudent for times like now…when the end of the world as we’ve always known it comes to pass.
Yet if gold’s an anti-investment, then what’s silver?
Silver, for one, is an industrial metal with many different applications. However, silver’s also an anti-investment; it’s a hybrid wealth refuge. And silver, like gold, will still endure after the mega collapse.
Thus herein lies our one critical – yet hated – opportunity to survive the mega collapse of 2022.
You see, at the moment, silver is despised even by holders of precious metals. We know this by looking at the gold/silver ratio (i.e., the price of gold divided by the price of silver). By this metric, silver is extremely cheap compared to gold right now.
When the gold/silver ratio is above 80, silver is comparatively inexpensive relative to gold. According to GoldSilver, the last three times the gold/silver ratio topped 80, silver increased 40 percent, 300 percent, and 400 percent.