scotview wrote:BT63 wrote:
Not only will inflation fall, but so will asset prices, especially the S&P500 which has a very high correlation with the supply of money and QE.
So if the Fed wants to drain all the Covid cash, the S&P500 will fall by more than half.
So, if I'm thinking of investing in a Vanguard fund, would it be best to invest in one of their USA funds or one of their World funds, after the crash ?
The last time the Fed tried rate rises and QT (in 2018) the S&P500 fell sufficiently to border on a bear market before the Fed flinched then reversed course, cutting rates and adding more QE, sending the S&P to new highs in early 2020 just before the Covid crash.
So the Fed might repeat that, stepping in to support the stock market to avoid a crash, at the expense of inflation.
But I think the US has pushed its luck financially to such an extreme that they might 'turn Japanese', at least in real terms if not nominal terms. Massive bubbles are everywhere. The ascent of the S&P500 (4-fold in a decade) isn't far short of the Nikkei's massive bubble of the 1980s (5-fold in a decade) which led to decades of underperformance, both Japan 1980s and USA 2010s underpinned by poor monetary policy.
Also whenever the S&P500 has been at valuations similar to where it was at the end of 2021, it has never previously given a positive real return over the following 10 - 20 years.
I would go for 'world' rather than 'US' because I think the US is over rated and and most other markets are at a useful discount. It's also a little more diverse.
I would also suggest a broader spread of asset classes than just global shares because things are likely to be very volatile for the next several years. Harry Browne's Permanent Portfolio would be a good start, perhaps with a slightly reduced cash and bond holding.
In the last several months I moved my own portfolio to approximately 5/40/55 (cash/precious metals/equities) and plan to take it to 10/40/50 soon.