2021 turned out to be a kind year to stock and real estate investors. In hindsight, this seems somewhat predictable.
The fed continued to print massive amounts of money, which they handed over to the federal government. They loaded that valuable cargo on helicopters and let it rain down on people the government would not allow to go to work.
Cutting production combined with money printing is a prescription for significant price inflation, which we got. If people thought the price inflation was permanent, they would sell bonds massively, driving up yields near expected long-term inflation.
But this was not the case. J-Po convinced the world that price inflation is transitory at least until the end of 2021. With bond yield holding firm, stocks continued the post lockdown rip.
The chart above shows that energy was the big winner, up over 53% last year. The oil price collapsed in 2020 when everybody was forced to stay home. This policy hit the energy stocks hard. But once people were allowed to go back to work, people got back on the road, and the oil price returned to normal levels. At $75, oil and gas companies make money once again.
Real estate had a big year, which should not be a surprise. People are “panic-buying” residential properties for a few reasons. Firstly, work at home allowed people to move out of the big cities and into the suburbs to work from a home office. Interestingly, we did not see people sell their city dwellings to any significant degree. Net-net, this increased the demand for housing. Secondly, this caused real estate supply to fall, pushing up prices. Once people realized the money printing and helicopter money drops would significantly devalue the currency, everyone tried to buy a place to live. We saw this first hand in our area, where people were paying unheard-of prices for houses that needed massive amounts of repair. Rents are going through the roof. Rest in much of the country are up 10 to 20%. Some areas are up much higher.
The financials did well as banks had more money to lend. Tech continued its upward trajectory. These sectors were up at 35%.
In short, everything sector of the stock market was up double digits. The weakest was Communication Services which was up just 16%. We think these stocks rose simply on the ability to push through higher prices. The telecom sector is saturated, and there are few new customers to be had.
Bitcoin and Ethereum had a good year as well. This performance should be expected as people flocked to Bitcoin to exit the fiat currency system where money is printed ad nauseam. They see the monetary inflation going wild and government spending divorcing itself from economic reality. History tells us that the dollar will lose purchasing power in such an environment. Interestingly, gold was down about 4.4%, and silver is down 12.7%. It seems digital assets are becoming the inflation sanctuary of choice. Be sure to keep up on the cryptocurrencies we think have utility. A list can be found here.
The consensus view is that young people prefer Bitcoin, older folks prefer gold has been used as money for at least 5,000 years. But the speculative fervor lies with the young, who speculating with a vengeance. The price action of Gamestop and AMC are but a few examples of their willingness to speculate, while those that have traveled the sun 60 times or more remain more conservative.
Yesterday, we published an article concerning our view of the S&P500, which we use as a proxy for stock prices. We encourage everyone to have a read. The cliff notes version is that we argue that if and when people come to realize that 5%+ inflation is here to stay, bond prices will collapse, yields will rise, taking down stock prices. We encourage you to have a read.
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