October 2021 Newsletter: Global Capital Eyes Bitcoin and Precious Metals as Key Indicators Point to Massive Stock Market Overvaluation

Home » Blog » October 2021 Newsletter: Global Capital Eyes Bitcoin and Precious Metals as Key Indicators Point to Massive Stock Market Overvaluation

September proved that the stock market is no longer on stable ground. Even worse, there’s no telling when the market will stabilize again.

The Buffett Indicator, named after Warren Buffett, is a ratio of the entire U.S. stock market’s valuation relative to GDP. It’s one of the key statistics used to determine whether the stock market is overvalued. Right now, the Buffett Indicator is at 289%—that’s about three standard deviations above the historical average, and firmly within all-time-high territory.

One of the reasons behind the stock market’s overvaluation is the abundance of liquidity in the market.

To understand how liquidity works, picture a lake. Unless the lake is full of water, the boats (i.e., private enterprises) cannot sail smoothly from one side to the other. As Yiming Ma of Columbia Business School recently opined, “The Federal Reserve is basically adding water in that lake to keep the liquidity—or to keep the water—from completely drying out.” 

The Fed’s quantitative easing program has seen $120 billion in monthly bond purchases flood the market with liquidity since the onset of the pandemic. But this can’t continue forever. Soon the Fed will scale back their monthly bond-buying, and the market will drain its artificially injected liquidity.  

As the market dries up, we’re likely going to see Mr. Buffett's predictions come true. There will be a reckoning event in the stock market, and it’s not going to be pretty. 

Speaking of the Fed, pressure is mounting on President Biden to appoint a new Fed Chair to replace Jerome Powell. He has until February to decide. If the Trump-nominated Powell is shown the door, then it’s anyone’s guess as to what new direction our monetary policy might take—perhaps even a total rug-pull on the Fed’s quantitative easing program. 

Plus, we can’t forget about Evergrande Corporation. They're China’s second-largest real estate developer, and they also happen to be on the brink of defaulting on their estimated $310 billion in debt. 

It's still uncertain whether the Chinese government’s buyout of Evergrade Corporation will be enough to prevent a global spillover event. If the Chinese real estate market collapses, this could send shockwaves through the global economy for years to come, much like Lehman Brothers did in 2008. 

This is to say nothing of the looming debt ceiling. If an act of Congress doesn't raise the U.S.’ national debt limit from its current level of $28.5 trillion by October 18, we could see outright systemic collapse. Unless the cap is lifted via a bi-partisan effort, the U.S. federal government will default on its debt, effectively evaporating at least $15 trillion in wealth and millions of jobs. 

As you would expect, prudent investors are taking aim at “disaster hedge” assets such Bitcoin, Ethereum, and precious metals. Over the past month, Bitcoin has stabilized around $43,000 per BTC, up about 40% on the year. Ethereum, the next-largest cryptocurrency by market cap, levelled out around $3,000 per token, up an incredible 400% since it opened the year at $720. 

With this much uncertainty in global markets, investors are preparing for the worst. By investing in cryptocurrencies and precious metals, you can hedge against systemic dysfunction, recessions, inflation, and potential financial collapse.

In today's economy, you can't afford to gamble away your savings on precarious stocks. Instead, diversify with a broad selection of safe, non-correlated assets. To get started, read our reviews of the top Bitcoin IRA providers; or, for additional protection, learn more about opening a Gold IRA today.

 

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Mark T.
Mark has worked in the investment industry in Chicago and New York for over 15 years. After graduating from Chicago State University with a degree in Finance, he has occupied various management positions at reputable banks and financial institutions, including: Chase, Bank of America, Wachovia, Sterling Trust and Fidelity. His experience has led him to develop a keen understanding of the current economic landscape. For the past 10 years, Mark has been working as an independent investment advisor and has helped many Americans learn how to protect and grow their savings by properly diversifying their portfolios.
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