November 2019 – The superior returns from monetary pessimism 2002-2020
|The powerful climb of the S&P 500 since the business cycle trough of 2009 and the last growth cycle trough of 2015/16, together with absence of recession, has made many investors resistant to pessimism. Yet monetary pessimism, correctly formulated, has in fact been the basis of far superior returns measured over standardized time periods (similar stages in the cycle or growth cycle) in gold and long-maturity T-bonds, more so than US stocks.
This is a finding which has special relevance to formulating investment policies, under present conditions, where a new growth cycle upturn has become market consensus. Riding a cyclical upturn has no sound exit strategy, especially where the super returns over the years could be extinguished in days or weeks of violent price moves.