The Coronavirus Pandemic Crash in March 2020 set in motion a series of stimulus programs from the Federal Reserve and Congress to stop the imploding Stock and Bond Markets.
Total injection— $7.5 Trillion of fresh, newly created money. That’s a lot of money created out of thin air.
It worked, the Crash was halted. Markets recovered. While it’s very popular for the media to talk about the big winning Stocks— the FAANGS. These five major, highly successful US tech companies are Facebook, Amazon, Apple, Netflix, and Google are doing fantastic. They literally are priced out of this world— yet investors keep buying.
Reality Check Please
The concentration in gains in a small group of Stocks poses great risks. One quick look at the DOW Stocks shows not every company has benefitted from the stimulus.
The $7.5 Trillion Dollar bailout has the DOW up from the first of the year till November 30th only 2.67%.
In the same timeframe the price of Gold Bullion has gained 16.54%.
The Federal Reserve dumped several Trillion Dollars into the markets in just a few days to backstop market makers who had burned through their liquidity. The Fed made first-ever purchases in Bond ETFs to save the meltdown in Bonds.
In the 21st Century, this has been the third U.S. Stock Market Crash—
- Dot Com Bust where the NASDAQ lost 78% of its value.
- The 2008 Subprime Mortgage Crisis another disaster.
- 2020 Coronavirus Pandemic Crash, in progress.
Each Financial Crisis was a dramatically larger disaster needing more and more bailout money from taxpayers.
Fed Monetary Inflation vs S&P 500 Stocks
When the Federal Reserve adds assets to its balance sheet, that means they have created money out of thin air and bought a depressed asset to keep the markets liquid and trading.
Look at this comparison of Federal Reserve Total Assets against the S&P 500 (the country’s largest companies) since the 2008 Crash.
We particularly want you to note the $1 Trillion Dollar jump in the middle of the 2008 Mortgage Crisis. That’s the bailout. Compare that with the $3 Trillion Dollars pumped into the Coronavirus Pandemic. That suggests the current event is already three times worse than we’re willing to admit.
Sadly, there’s more bailout money on the way— also created out of thin air.
Conclusion: Every eight years or so the U.S. Stock Market goes into a panic selloff. The severity gets worse with each event. Computer trading has exacerbated the selloffs.
As the U.S. National Debt passed the $27 Trillion Dollar mark, the country is on shaky ground. The full extent of the Covid lockdown damage remains unknown. The massive levels of money creation should create inflation. We all should expect to lose buying power for cash equivalents.
Gold may be the one best alternative investment as the next Covid stimulus unfolds. Buy Gold in the dips.