According to Lyn Alden, “Equities by most metrics are very expensive. But, actually compared to Treasury yields, they’re not that expensive at all.”
Tuesday was another frightening one for speculators long tech stocks on the Nasdaq, which fell 4%. As the markets continue to crater, some investors are hiding in the relative safety of gold. The Nasdaq is now down about 10% in the past three trading days.
When asked if we will see another stock market crash, Lyn responds, “I think there is a rising probability for one.”
On valuations, Alden talks about fiscal stimulus and its role in the next round of support. She believes it may come in the form of tax cuts, enhanced unemployment benefits like we saw earlier in 2020 or more stimulus checks. She doesn’t rule out the possibility of corporate or payroll tax holidays also.
The Fed and Treasury will do everything possible, particularly before the election, to keep valuations high.
Concerning replacement income,
“For the nation as a whole, national income is actually higher than when it started the year. That is because government transfer payments kind of filled that hole that is leftover from lower employment.”
Lyn Alden explains that if another round of fiscal stimulus doesn’t come soon, we will see more people miss rents and mortgage payments, leading to a “disinflationary contraction.” Furthermore, if the government unleashes another round of fiscal spending, we will be back to where we started this year. For gold investors, they are awaiting the next round that should push prices higher.
“Disinflation is a temporary slowing of the pace of price inflation. It is used to describe instances when the inflation rate has reduced marginally over the short term.”
In our ever shortening news cycle, Fed Chairman Jerome Powell’s major policy shift to “average inflation targeting” is old news. Just over a week old, the central bank’s new policy to allow inflation to run above its previous target of 2% to average out weaker periods, failed to keep the markets rising for long.
Markets Heading for March 2020 Lows?
In Alden’s worst-case scenario, which assumes zero additional stimulus, the March bottom is realistic. Currency devaluation and federal debt lead the middle of the discussion as the fight by central banks to inflate and depreciate their respective fiat currencies continue.
Alden is bullish on precious metals and international stocks, along with value stocks in the US. She is avoiding low-yielding treasuries and cash.
Why Alden Likes Gold in 2020 and Beyond
Alden believes gold trades on two main variables:
- increase in the money supply
- real interest rates
Alden goes on to explain that,
“Gold tends to do very well in low or negative real rate environments. And tends to do poorly when you can get a real positive return from cash and treasuries.”
Alden does warn that if fiscal gridlock continues in Washington and there is a lack of stimulus, we could potentially see higher real yields.
Lyn Alden remains bullish on precious metals long term, predicting we will likely be in a very low yield environment for a long time. Despite most stocks declining Tuesday, gold stayed steady, rising a couple of bucks to $1,931.65 an ounce. Gold continues to consolidate after breaking above $2,000. With the markets in a tailspin and the election less than 55 days away, expect the Fed to step in before long.