The year just completed, 2020, was a year in which most markets rose by double digits, fueled by an unprecedented infusion of cash from the Federal Reserve and the U.S. Treasury. The Federal Reserve added over $3 trillion to its balance sheet in under four months, from mid-March to June 30, increasing liquidity to the investment community through bond purchases, while the U.S. Treasury added a similar amount in stimulus packages to the American people. Since many businesses were closed and travel was restricted, most Americans did not spend this money on goods and services, or on travel and leisure, but on investments. As a result, Bitcoin soared, as did global stock markets, residential real estate and other investments.
In most years, either stocks OR precious metals rise, not both, but in 2020, both rose by double digits:
Other examples in major markets would include residential real estate and global stocks. In the last year, the Case-Shiller home price index rose 8.4%, its greatest rise in 14 years. In the last four months, its pace of increase doubled, to a 16.3% annual rate. Another example is the Japanese stock market, which has been depressed for decades, due to its high debt, a weak economy and a shrinking, aging population. Japan has the highest debt-to-GDP ratio (236%) of any nation on earth. Despite all these negative fundamentals, the Nikkei 225 Japanese stock market index has skyrocketed 20% in the last two months, in a buying frenzy.
Now, with new stimulus checks being sent out last week, we will see more money in the hands of American investors over the next week. The new Biden administration should be putting more money in the hands of Americans over the next two years. This is “Modern Monetary Theory” in action, which says “deficits don’t matter.” Pundits claim that there is no inflation, but “asset price inflation” is all around us!