Let’s take a quick look at how several investment assets have performed over the past year. This is price performance only; interest and dividends would add to the figures for stocks and bonds. At these low yields, however, not that much. To make this as real world as possible, I’m citing popular exchange traded fund (ETF) figures, including expenses, as a proxy for the underlying assets. All are in US dollar terms.
Copper (CPER): 30.34%
Gold (IAU): 24.23%
Silver (SLV): 40.88%
Platinum (PPLT): 13.13%
Short term US Treasuries (VGSH): 1.77%
Intermediate term US Treasuries (VGIT): 5.32%
Long term US Treasuries (VGLT): 12.87%
US Stocks (VTI): 19.72%
XUS Stocks (VXUS): 8.38%
Stocks (VT): 14.64%
Bear in mind these figures belie a variety of paths through which these annual changes occurred.
But how did so many so different things all go up so much? Metals from copper to gold, stocks in different parts of the world, even long term Treasury bonds? What do they have in common that would cause them all to rise in value over the course of a year? Did they all join in some metaphysical conspiracy?
Look for what they have in common. Nothing intrinsic. But we did quote all their prices in US dollars. Give the matter a little thought, and it’s clear that most of what we see as an otherwise inexplicable joint increase in value is an artifice of our having chosen a common unit of measure. One which we tacitly assume to be a constant but which only appears to be due to our habit of using it as our unit of account. Most of what we’re seeing here is a decrease in value of that common unit, the US dollar.
Near term, the risk setup favors gold over stocks. I called out gold as oversold on November 24, and it appears to have put in at least a short term bottom on November 30. Treasuries may have yesterday. Copper and platinum are on fire. Besides the overbought/oversold positioning, stocks have broadly been weakest near the end of the trading day, suggesting smart money is selling. Anecdotal reports also indicate insider selling has picked up, while the Robin Hood set has been in feverish speculation mode, piling in to momentum plays like Tesla and bitcoin. For now I’m not reading anything more into it than a near term reversion of overstretched trend, with a more significantly different environment not likely coming until after year end. We’ll discuss that further then when the next Synthetic Systems update is due.