Gold, oil, stocks, and the return of stagflation: where to find profits in the current environment.
What investments have the potential to perform well under the economic and market conditions that are taking shape around us? From many different angles, the concept of “secular stagnation” suggests that we are in a period of sluggish growth and persistently low interest rates — partly because of central bank actions, but partly because of deep and long-term cyclical economic effects. We are also in a period where after a long slumber, inflation may be beginning to make itself felt again. This environment begins to feel something like the “stagflation” of the 1970s. Such an environment can be beneficial for gold, silver, and oil, but it can also be beneficial for stocks. With underlying interest rate expectations persistently low, there is room for stock earnings yields to fall, and price-to-earnings ratios to rise. In addition, stocks could be boosted even in a slow-growth inflationary environment when investors buy equities in an effort to protect their capital from inflation. We like gold, silver, and oil — but don’t count out the possibility that U.S. stocks could break out to new highs.
