U.S. stocks since May 2017. Now, as we close out this roller coaster of a year, the U.S. stock market is more expensive – and therefore riskier – than at any time in the past century. It’s once again time to sound that bearish alarm. Now a wider range of outcomes for the price of a given asset can indicate higher risk. For example, there’s a much wider range of outcomes for small-cap mining stocks (0% to 1,000%) than for Treasury bonds (1.6% a year for 10-year bonds today). The stock market has made higher highs since I got bearish... but it has also made lower lows. In other words, a wide range of outcomes occurred, indicating risk levels were as high as I told you they were back in 2017 . The more expensive stocks become, the riskier they are to own... The U.S. stock market is more expensive now – and therefore riskier – than at any time in the past century.
You might have guessed all those new U.S. dollars would cause gold prices to hit new all- time highs of more than $2,000 per ounce. (You would have been right.) But would you also have guessed they’d first plunge from $1,674 per ounce on March 9, 2020 to as low as $1,477 per ounce just nine days later? Would you have guessed bitcoin would rise more than 170% since January 1, 2020, even after plunging 30% early in the year? Was bitcoin even on your radar one year ago? It was barely on mine. And what about the stock market? Would you have guessed it would rise 64% off its March 2020 bottom? Would you have thought new all-time highs were even a remote possibility after that? Would you have thought that despite a raging pandemic, political upheaval, and civil unrest, stocks would surge to their most expensive valuation in history – even more expensive than the 1929 and 2000 market tops? Probably not. I didn’t expect a devastating pandemic or sweeping global economic shutdowns. But we did demonstrate an excellent
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S&P 500
understanding of risk, without which you’d be flying blind in financial markets... I’ve been sounding a bearish alarm about
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American Consequences
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