Economic Turmoil Boosts Safe Haven Assets: Long Real Money, Short Fiat
Gold and Bitcoin are becoming correlated for the first time in historyStocks in the US are beyond overvaluedThe Fed may ease monetary policy furtherThe US Dollar is losing reserve currency statusGold continues hitting record highs against major fiat currencies
Safe-haven assets are seeing massive capital inflows. This has been forecasted for a long time by many people, including GSB and its readers and subscribers. Let's examine some of the details of this development.
Bitcoin vs Gold: Safe Haven Assets Now Correlated
The whole "bitcoin vs gold" or "drop gold, buy bitcoin" feud is nonsense. And now data is finally emerging to prove that.
BTC and gold are moving together more and more as safe-haven assets become more attractive.
This only validates what many in the crypto community have known for years: as global volatility increases and fiat currencies begin to collapse, hard money like gold, silver, and bitcoin will be increasingly bid.
Fake Markets: Stocks in America
The US stock market is being propped up. The market has been artificially inflated for a decade through quantitative easing, zero percent interest rate policy, and corporate share buybacks. The market also continues to be engineered to bounce back every single time there is a drop.
This pattern has been repeating for some time, and there's no question that honest price discovery mechanisms have ceased to exist. Just look at the following chart showing the correlation between stock buybacks and the S&P 500:
Chart via Zerohedge.comMost of the market is extremely overvalued. Look at price to earnings ratios, for example.
Historically, stocks have averaged a P/E ratio of about 15 - 20. A ratio of 40 is generally considered very high, while 7 and under is considered low.
The P/E ratio of Amazon (AMZN) in 2018 was 89.65. And that's nothing compared to some other tech stocks like Hubspot (HUBS) and Square (SQ), with P/E ratios of 388 and 1052, respectively.
At the same time, companies that are not even making a profit are seeing sky-high valuations. Uber, for example, has a P/E ratio of just 0.04. Yet the stock has a market cap of $55.6 billion and is trading above $32 per share.
All of this shows that the stock market no longer reflects reality. Financial engineering has gone on for so long and to such an extent that stocks are no longer a valid indicator of economic activity.
With free money at 0% interest from central banks, companies have bought back their own stocks to outrageous degrees. Despite this, the return of holding stocks has paled in comparison to that of safe-haven assets.
Yearly Returns of Stocks, Gold, and Bitcoin
Let's compare the year-to-date returns of stocks, gold, and bitcoin. These figures reflect the global economic slowdown and the steady failure of fiat currencies.