While US inflation has skyrocketed, investor and financial journalist Lyn Alden Schwartzer released a report following massive stimulus from the Federal Reserve showing that “US households now have record equity exposure.” The news comes at a time when many analysts and economists believe that stock markets are in a colossal bubble.
Dow loses 900 points, financial expert Lyn Alden Schwartzer publishes report on US household equity exposure
The stock markets saw a significant slaughter on Monday as the Dow Jones Industrial Average lost 900 points (EDT), or 2.3%, in the morning as it was the largest drop in value of the year. Similarly, the Nasdaq Composite was down a terrible 1% on July 19th and the S&P 500 index was down 1.5% on July 19th. Mainstream media reports blame the market downturn on the recent surge in global Covid cases and the Delta variant.
Meanwhile, Travis Kling, the crypto advocate and managing director of Ikigai Asset Management, shared a tweet from financial expert Lyn Alden Schwartzer saying, “US households now have record-high equity exposure.” Kling also said spoken on the issue, stressing that the Fed could make this a national security issue.
“I’ve been saying for over a year – the SPX is going up, it’s one thing [of] national security for the United States. The Fed has the option to achieve this (for now). What do you think they will do? “Asked Kling.
In addition to tweeting about US household stocks, Schwartzer posted a blog post on the topic on Seeking Alpha. The financial analyst said the researcher released a report last May highlighting how the United States is currently being driven by “tax-driven inflation”. In the latest report, the analyst says that “this is what the US is experiencing right now”.
“Due to stimulus effects and a rapid growth of the broad money supply,” it says in Schwartzer’s report. “Consumers have more money to spend while the production of certain goods and services remains restricted in various ways. This combination causes the prices of all goods and services that are constrained to rise until those prices rise enough to curb demand. “
Schwartzer: “Government bonds are not keeping pace with inflation and are losing purchasing power as a result”
Schwartzer goes on to explain that “the effects of fiscal-driven inflation are still occurring with 5.39% average price increases over the previous year”. Meanwhile, the interest rates on bank accounts and Treasury bills (T-bills) are considerably low.
While showing a 3-month St. Louis Fed T-Bill chart, Schwartzer notes, “If we zoom out, what you see is the real long-term rate of 3-month T-bills, which is the interest rate, the T-bills numbers minus the prevailing consumer price inflation rate. ”Schwartzer’s analysis adds:
These T-bills also tend to be a pretty good proxy for interest on bank accounts. If this blue area is below zero, it basically means that the interest rates on bank accounts and short-term government bonds are not keeping pace with inflation and are therefore losing purchasing power.
In addition to US household equity allocations, Schwartzer notes that a major risk to the markets right now is “this new wave of delta variant virus cases.” The economist also points out that this is “the first time the US stock market has reached 200% the size of US GDP”.
The investor is optimistic about the energy sector, but sees Covid cases and “government lockdown reactions to them as a short-term risk factor for a correction in the industry”. Schwartzer explains that the energy market could no longer swell for a short time. While Schwartzer is optimistic about the energy sector, the investor also mentioned diversification into Bitcoin (BTC) in a video recently published by the Financial Monster YouTube channel.
In addition to fiscal-driven inflation, the number of US homes allocating stocks is also being driven by soaring prices and speculative investment, according to the Schwartzer report. “The US household allocation to stocks currently stands at a record high percentage of total US household wealth, due to a combination of high valuations and speculation.”
What do you think of Lyn Alden Schwartzer’s assessment and the current record exposure of US households in equities? Let us know what you think on this matter in the comments below.
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