The major market indices – the S&P 500, the NASDAQ and the Dow Jones Industrials – have been making a series of continuous new highs for many weeks in a row now. This is how bubbles end. A seemingly endless orgy of unrestrained greed and rampant speculation eventually collapses into the financial abyss. But for now, shareholders must be feeling absolutely giddy.
There is nothing more satisfying than getting rich, except perhaps getting rich effortlessly. And if the global financial market bubble has done nothing else, it has made people falsely believe they are suddenly becoming wealthy.
The truth of the matter is somewhat less sanguine. As of the summer of 2017, equities sit at valuations that are some of the most extreme in history. Today’s stock market is in the company of illustrious market bubbles of the past, including the 1929 peak that ushered in the Great Depression, the 2000 peak that heralded the end of the dot-com bubble and the Japanese 1989 peak that kicked off 25 years (and counting) of economic stagnation for the island nation.
I believe that we will be forced to give up these silly ideas of perpetual, unearned financial wealth in just a few short years. This isn’t a very popular opinion to hold at the current time. People get angry when you tell them that their imagined future life of leisure funded by a continuously rising stock market is destined to never happen.
But, regardless of what market speculators, retirees and other investors desperately want, the dustbin of history calls. The paper gains that almost all market participants eagerly hoard right now will undoubtedly be rudely torn away soon enough.
And the size of those losses is likely to be absolutely staggering. The equity market drawdown necessary to return the S&P 500 to even historically average valuations is anywhere from 50% to 60% right now. That translates into losses of at least $12 trillion. And that scenario only envisions a return to average valuations, not undervaluation. Even so, absolutely no one is prepared for a decline of that magnitude.
Instead, many market participants foolishly believe they’ll be able to outrun every other speculator to the exit when things start to go bad. Neither math nor history is on their side in this particular conceit. Rather, I find it much more likely that nearly everyone romping in the overvalued equity markets today will take losses that are somewhere between harrowing and obscene.
Bonds are no safe havens either. Right now the BofA Merrill Lynch U.S. Corporate BBB bond index has a miserly yield of around 3.5%. This doesn’t seem very enticing, particularly when one considers that corporate America is more leveraged now than at any other time in recent memory. These two elements – low bond yields and high corporate leverage – are not a combination conducive to healthy future returns.
However, there is at least one relatively safe asset class – tangible investments. I strongly believe that precious metals, art and antiques will perform admirably in the coming financial debacle. It is one of the reasons I started the Antique Sage website. I want to provide people with the knowledge and skills they will need in order to safely invest in these alternative asset classes.
Tangible investments are the antithesis of paper assets. They are solid, real and can be physically held in your hands. They are not vague promises of future payment. Nor are they a theoretical ownership interest in a company that will promptly cease to exist if it should lose capital market access. Tangible investments cannot be cancelled in a corporate bankruptcy or printed by a profligate central bank.
Tangible investments are often historical and invariably beautiful. They have been recognized as objects of desire by the wealthiest and most cultured members of society for hundreds of years. They can be as varied as a bar of gold, a Renaissance painting by an Old Master or an Edwardian diamond brooch. But they are all – without exception – rare, precious and undervalued compared to the tsunami of questionable paper assets that has engulfed the world.
I encourage you to take some time and browse the articles on this website. I hope they will open your eyes to the opportunities present in tangible investments that you may have never considered before. If it were truly possible for humanity to get rich solely via compound interest on paper assets, our ancestors would have done it long ago.
There are dark financial storm clouds gathering. The dizzying ascent of the stock market is impossibly steep. As the old saying goes, “If it looks too good to be true, it probably is.” Paper assets are the ultimate sucker’s bet right now. They are priced so high that an investor can’t possibly walk away whole unless he is either unbelievably skilled or unreasonably lucky. Tangible investments, on the contrary, are priced as honest assets in an honest market. And that is rather refreshing.
