Daniel Amerman

Time 2020-09-24 20:04:16

Web Name: Daniel Amerman

WebSite: http://www.danielamerman.com

ID:58479

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How The Coronavirus Pandemic Lockdowns May Transform Investing In The 2020s: Four Crucial Analyses Stocks, bonds and homes account for the great majority of the net worth of most people - and all of these asset values were up by 30% to 50% between 2001 and 2019 when compared to long term averages (even after accounting for inflation). As explored in this analysis, there is a shared reason for these much higher valuations. There is also a reasonable chance that they could eventually go much higher still, and perhaps persist for many years to come - though the way the pandemic lockdowns could lead to that possible future would be a surprise to most people. On the other hand, if we at any point merely return to the average valuations of most of our lifetimes, perhaps as a result of the economic shock produced by the coronavirus pandemic - then for many millions of households the long term consequences could be the loss of most or all of their home equity and much of the value of their retirement accounts. Since 2001, each dollar of earnings for stocks in the S P 500 is being valued by the markets as being worth almost 50% more, compared to the prior long term average. Single family homes are worth about 33% more, even after adjusting for inflation and changes in home sizes. Equivalent ten year Treasury bonds are being valued as being worth an average of about 34% more. And while gold is quite different from the other categories - it shares the dramatic increase in value since 2000, with the inflation-adjusted price per ounce being up by just over 50% compared to prior long term averages. As explored in this analysis, there is a shared reason for these much higher valuations. There is also a reasonable chance that they could eventually go much higher still, and perhaps persist for many years to come. As we will individually explore for each major asset class in this analysis, we now have more volatile investment markets - and, on average, substantially higher valuations. With the arrival of a 3rd cycle of crisis in the form of the coronavirus pandemic, and the Federal Reserve unleashing its most massive interventions yet in 2020 in what will be an attempted 3rd cycle of the containment of crisis, understanding the relationships between those interventions and asset prices becomes even more critically important for the years ahead. This includes seeing how asset prices in each category could eventually travel to still higher places - or what could quickly bring them back down to historic averages or below.Read the full analysis. How A Soaring National Debt Can Reduce Retirement Standard Of Living By 77% One immediate result of the economic damage from the coronavirus pandemic is a quick and almost fantastic degree of increase in the national debt, in order to pay for trillions of dollars in stimulus programs. Now, many people see the soaring national debt as being a political problem that could possibly lead to default or hyperinflation in the distant future - but they don't see the practical impact on their lives or investment decisions today, and they may therefore not see the relevance of these new trillions in debt. This detailed analysis uses more than 50 years of data about the national debt and interest rates to demonstrate that the first quick doubling of the national debt to pay for the stimulus spending associated with financial crisis of 2008 has already transformed  retirement investing and standards of living in retirement. Using that historical information, we will develop the graph above in a step by step analysis. We will look at the example of someone who starts with $100,000, invests for 20 years, retires, and then draws down their savings over the next 20 years in retirement. As will be demonstrated for each $100,000 in savings - the full cost to that retiree of the growth in the national debt could be over a half million dollar reduction in their standard of living in retirement - and that is just for the first doubling, not including the impact of the coronavirus recession. While events are still in the early stages and we don't yet know the full costs of the deficit spending that will be used to try to overcome the staggering economic costs of the coronavirus lockdowns, the somewhat conservative illustration shown above combines the planned cumulative deficits in green from before the pandemic, and adds on the cumulative cost of new stimulus spending in red. Using reasonably conservative assumptions, the national debt effectively doubles to over $40 trillion by the end of the 2020s. This additional borrowing of close to $200,000 for every above poverty line household in the United States in the next ten years will be far from free. It will instead be one of the most expensive events of a lifetime for not just the nation, but on a very personal level for the citizens as well. This cost will be not be evenly borne, but as developed in the analysis, will instead be disproportionately paid for by reductions in future standard of living for savers in general, with the heaviest costs being paid by long term retirement investors as well for those retirees depending on retirement savings to support their lifestyles.Read the full analysis. Using Gold Stocks As Contracyclical Assets: A 5,000 To 1 Advantage Extraordinary stimulus spending by the U.S. government and massive monetary creation and spending by the Federal Reserve may be enough in combination to end the coronavirus recession in the next year or two, and eventually create still higher asset prices for stocks, bonds and homes in a 3rd cycle of the containment of crisis. But, they may not. If the 3rd round of the containment of crisis fails, then the results of the pandemic and economic lockdowns could include a long and severe recession - or even a depression - and a potential secular (long term) bear market in stocks. If this were to happen, then history shows that gold has far more valuable uses than if it were just a mere inflation hedge. In this chapter, using six stages of analysis, we will explore a powerful and highly consistent historical relationship between gold and stocks that offers investors the ability to use gold in ways that far exceed the profits produced by just attempting to keep up with inflation. What historical numbers over 50 years show is that if we get another round of a secular bear market in stocks, then those who understand and invest for the contracyclical relationship between stocks and gold can come out 10X or more ahead in net worth over a 10-20 year period, when it comes to price changes on an inflation adjusted basis. For a 20-30 year time period, correctly aligning oneself with the counter-cycles would have historically produced a 100X or more greater increase in net worth, versus having the opposite alignment. Indeed, if a 30 year old had bought gold in 1969, switched to stocks in 1980, switched to gold in 2000 and switched to stocks in 2012, just those four investment choices - being completely passive all the rest of those years with national average results in each year – then price changes alone would have produced more than a 5,000 to 1 advantage in the money they would have had at age 80 in 2019, compared to if they had made the four opposite choices.Read More The Lucrative Profitability Of A Move To Negative Interest Rates When it comes to the recession that is being created by the pandemic lockdowns - then the U.S. government and Federal Reserve have no intention of just letting the market forces play out. Instead, the intention is to contain a potential deeper round of crisis with the most extreme interventions yet. One very real possibility is for the Fed to follow the European Central Bank and the Bank of Japan, and to spend trillions of dollars to buy government (and corporate) debt while creating negative interest rates. In this analysis, we will explore how the Federal Reserve could create one of the largest redistributions of wealth in U.S. history, with hundreds of billions of dollars in profits going disproportionately to insiders - at the expense of the general public (never let a national emergency go to waste). As illustrated with a step by step example, when we follow the money - $279 billion out of every $1 trillion in newly created money could end up going straight into the hands of organizations and individuals who make up a relatively small percentage of the nation. To contain and exit recession, the Federal Reserve intends to engage in what could become the largest round of monetary creation in U.S. history. Those dollars will be quite real, and the reason for their creation is to spend them. A big chunk of that spending will become profits going straight into the pockets of investors. This won't actually be a closed game - anyone can try for a share of those new Federal Reserve dollars, but first they have to understand that the game exists, and then they need to learn how it is played.Read the full analysis. Using A Matrix Framework To Identify The Cyclical Risks Opportunities Created By The Coronavirus PandemicThe United States has been moving through cycles of crisis and the containment of crisis, with an unprecedented degree of heavy-handed interventions by the Federal Reserve feeding the cycles and deeply distorting investment results. These cycles are not over, but are ongoing and are amplifying as a result of the coronavirus pandemic lockdowns. This means that some of the biggest losses which we have seen to date are likely still ahead of us, and possibly within the next few years. These losses could be devastating for many millions of investors following traditional strategies.However, when we take not a gloom doom perspective, but a cyclical perspective, then we can understand the many logical reasons for why a new cycle of some of the highest asset prices and largest profits of our lifetimes for 1) stocks; 2) bonds; 3) real estate; and 4) precious metals could also still be awaiting us in the coming years. In combination, the cycles and the extraordinary degree of Fed interventions create more volatile markets, with higher highs and lower lows than have existed in the past - and they do so in a rational sequence, much of which can be understood in advance by investors. Using a matrix, with the cycles as the columns and the investment categories as the rows, we will introduce a new framework for seeing and understanding the many investment implications of the cycles in an environment where the economy and markets are still dominated by heavy-handed Fed interventions. This framework can be systematically applied to identify the logical sequences of nontraditional risks and heightened opportunities for each of the individual major investment categories at each of the different stages in the cycles, as well as in each of the transition points between the cycles. Read the full chapter. Learn about the free book. Recent Analyses Ongoing articles and commentary about current financial developments are sent directly to subscribers (subscription is free, and is included with the free book).  A sampling of some recent articles can be found below. Sequence Of Returns Risks - How Vicious Circles Can Destroy Financial Security After Retirement Read More The Magnitude Of Long Term Profits In A Gold Secular Cycle Read More A Strong Signal For A Secular Bull Market In Gold Read More The Bizarre Mathematics Of How Negative Interest Rates Create Stratospheric ProfitsRead More Gold Bonds During A Pandemic - Comparing Two Opposite Sources Of Crisis Profits Read More Gold, Stocks The Pandemic: A Powerful Contracyclical Play In Action Read More Federal Reserve Funds 165% Of Record Pandemic Deficit Spending Through Monetary Creation Read More The Secret History Of A 70% Market Loss - What A Secular Bear Market In The 2020s Could Look Like Read More Stepping Back From The Chaos: The Coronavirus Cycle Of Crisis In Perspective Read More A Battle Of Titans: The Coronavirus Versus The Fed Read More Using A Contracyclical Rebalancing Hedge For Stocks Gold To Increase Inflation-Adjusted Returns From Price Changes By 50% While Lowering Risks Read More Gold Had A Strong 2019, But The Disconnection From Inflation Continues Read More How High Proposed Tax Rates Can Lead To Effective Gold Confiscation (2020 Election Edition) Read More The Half Trillion Dollar Crisis With The National Debt - A Near Miss For Retirement Accounts Home Values Read More Government Deficits 100% Funded By Fed Monetary Creation Since September 2019 Read More Hacking The Economy To Determine An Election: Is It Happening? Read More National Debt Forces Potential $634 Billion In Money Creation Read More Funding Of U.S. Deficits By Monetary Creation Reaches 90% In Late 2019 Read More Calculating Your Personal Cost If Stock, Bond Home Prices Return To Average Read More The New Threat To Housing Stocks From Government Deficits Read More How The Red/Black Matrix Performed: Seven 2019 Scenario Results Read More The Housing Market In 2006-2007 and 2018-2019: Similarities Differences Read More The Surprising Advantages Of Investing In Gold, A 50 Year Historical Analysis Read More Next Recession: The New Risks New Profits Of A Grand Experiment Read More Will Fed Actions Create Dow 40,000 - And Triple Gold Prices? Read More Seven Key Words That Explain Stupidly High Prices Read More Negative Interest Rates In The U.S. Go Mainstream - With Some Glaring Omissions Read More Next Recession: The Case For A 36% Stock Market Loss Read More Facebook's Libra vs Bitcoin: Five Key Differences Read More Is Your Financial Security Based On A Double Aberration? Read More Next Recession: Finding A 48% Yield Amid The Ruins Read More Next Recession: Concentrating Future Losses Bringing Them Forward In Time As Profits Read More Next Recession: Turning Zero Percent Interest Rates Into A 21% Yield Read More Stacking The Next QE On Top Of A $4 Trillion Fed Floor Read More A New Great Recession, Once Every Five Years Read More Will The 35th Recession Bring A Swift Return To Zero Percent Interest Rates? Read More Will A 35th Iteration Of This Night Day Cycle Change Your Retirement? Read More Using The Red/Black Matrix To Identify Investment Risks Opportunities Read More Three Beautiful Arbitrages (Why Yield Curve Inversions Happen) Read More OECD Recommends Potential Major National Debt Increases: The Impact On Retirement Read More The Sixth Graph - The Multiplication Of Wealth Read More Using The Five Graphs To See The 1-2-3 Cycle Of Exaggerated Profits Losses Read More Five Graphs That Explain How The Fed Creates Extreme Real Estate Price Movements Read More Will The Federal Reserve Create Two Major Investment Arbitrage Cycles? Read More Is Traditional Financial Planning Blind To The New Sources Of Profits? Read More A Model That Better Fits The Data Read More A Remarkably Accurate Warning Indicator For Economic Market Peril Read More Does The Containment Of Crisis Create Record Investor Wealth? Read More A Continuous Cycle Of Crisis The Containment Of Crisis Read More The ABCs Of Popping A Third Asset Bubble Read More Using Personal Math Instead Of Abstract Theory To Make Better Retirement Decisions (Social Security Debate) Read More How Inflation Reduces The Real Value Of Social Security Net Of Medicare Premiums (Part 6) Read More Medicare Premiums Are A Shared Pool - Eight Coming Changes That Will Transform Retirement (Social Security Indexing Part 5) Read More The Critical Impact Of Medicare Premiums On Social Security Inflation Indexing (Part 4) Read More Out Of Money By November 29th - Social Security Indexing Part 3 Read More Out Of Money By December 12th - Social Security Partial Inflation Indexing Part 2 Read More The Social Security Inflation Lag Calendar - Partial Indexing Part 1 Read More Game Theory Retirement Choices - Should You Get Yours, Before Everyone Else Tries To Get Theirs? Read More Are Roth IRA Owners Likely To Be Subject To Double Taxation? Read More This analysis contains the ideas and opinions of the author.It is a conceptual and educational exploration of financial and general economic principles.As with any financial discussion of the future, there cannot be any absolute certainty.While the sources of information and the calculations are believed to be accurate, this is not guaranteed to be true. This educational overview is not intended to be used for trading purposes, those making investment decisions should do their own research and come to their own independent conclusions. This analysis does not constitute specific investment, legal, tax or any other form of professional advice.If specific advice is needed, it should be sought from an appropriate professional.Any liability, responsibility or warranty for the results of the application of the information contained in the analysis,either directly or indirectly, are expressly disclaimed by the author. Copyright 2006-2020 Daniel R. Amerman, CFA

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