What should investors do now?
Stock valuations are at all-time highs despite Covid-19! The S&P 500 price to earnings ratio is at 31.24, up from 22.22 last quarter, and up from 21.75 one year ago. That is a massive 40% increase from last quarter and 44% compared to one year ago.
Half the world is in Lockdown, but the biggest stock markets worldwide have reached new all-time highs. There is a persistent disconnection between real economic data and current price levels in most markets. This disconnect is most starkly apparent in shares of Tesla with an unjustifiable price to earnings ratio of around 1000 (normal P/E ratios are between 16 – 22). The S&P Index explosion has been driven by very large tech-companies, as many industries have used the Covid-19 year to digitalize and reduce costs. Their newfound flexibility and digitalization are likely to lead to improved productivity.
New themes: hydrogen, climate-change, green investment, smart agriculture and government spending mixed with extreme money-printing have led to ultralow interest rates. It doesn’t look as if there will be any significant change in interest rates over the coming years. Owning the power over un-backed global currency is a massive privilege, which is taken for granted to finance wealth in spite of a serious lack of innovation. So: holding cash and long maturity bonds is no longer a profitable option as these investments lose money through the loss of purchasing power due to inflation.
Stock market investments
In an environment where all that’s needed to return to high inflation is an increased speed of money circulation (M2) high quality stocks with growth potential should be part of any good portfolio as they reflect real value and increase in price with inflation. Flexible, liquid, and moveable physical assets (silver and gold) are worth keeping. Even major crypto currencies have proven fairly resilient and successful but they are volatile and have powerful political enemies. Our advice is to invest in physical liquid assets and real themes, which will grow in the future. Even though the current ratings seem high, to invest in long-term trends like smart agriculture, hydrogen or green energy offers good future chances. It is to be expected that a lot of (government) money will flow into these markets over the coming years.
Due to low flexibility, high leverage, illiquidity and high transaction costs, property is not the high-yield investment it once was. The impact of Covid-19 on commercial property prices is expected to be significant over the upcoming months, and asset taxes, in our view, are more a treat to property investments (excluding your own home) than other available options. The fact is that the current market has become very difficult and investors are increasingly approaching us to exchange ideas and to discuss their existing portfolios and saving options.
You are welcome to come and sit down with us (or e-meet). Learn more about our views and how we can help you to secure your wealth into the future, independent of what that future may bring to us.