Bubbles are a dangerous trap for your retirement and investment portfolios, but they are not a new phenomenon. There were bubbles during the Dutch tulip mania four hundred years ago.
The French similarly allowed a bubble to grow in the 1700s (during one of the largest asset bubbles of all time anywhere) when the French monarch granted the Compagnie Perpetuelle des Indes a complete trading monopoly on all French overseas territories and colonies in the world.
Needless to say, both of these scenarios ended very badly. Today’s stock market valuations may seem like they can never go down, but as history has shown us repeatedly, everything that goes up will eventually come back down. Consider the P/E Price to Earnings ratio, a classic measurement for learning if stocks are undervalued or overvalued.
Going back over the records of more than a hundred years of data on the stock markets, you find that the S&P 500 long term P/E average has remained at approximately 15. Yet just this past week, the stock market S&P 500 index touched 26.5. If this sounds suspiciously high, it is. The figure represents an over 75 percent greater level than the historical longer term average.
Even more telling, going back to the 1870’s, there have only been three different points where the P/E stock prices average topped 26.5. The very first one occurred during the infamous Panic of 1893. The second one was far more current in the form of the year 2000 dot-com stock market crash.
Most recently, the third one happened in advance of the 2008 Great Recession and global financial crisis. All this tells you that as the markets get way ahead of themselves, full blown meltdowns result. Yet this is not the only problem with the financial and investing environments these days.
Despite the fact that the markets are pushing (and frequently making) new all time highs as the chart above shows, the economic growth throughout the globe has been slowing down actually. The growth in global trade has dropped to its lowest point since the end of the worldwide financial crisis. For 2016 in the U.S. as an alarming example, the growth in GDP stalled at only 1.6 percent. This makes 11 years in a row that the American economy has gone without realizing three percent growth in its Gross Domestic Product.
Remember that slower economic growth weights on corporate profits. This makes it extremely hard to realize fantastic earnings when the economic growth is so mediocre. Consider the example of internationally dominant, British-based HSBC bank.
Calling them a sort of global economic bell-weather is not an exaggeration. This financial institution is among the biggest banks in the world (largest by balance sheet with $3 trillion in assets) with their branches and businesses in over 70 different countries and territories. Just last week the bank reported that their profits had crashed by 62 percent because of uncertainty and deteriorating growth throughout the globe.
Is Your Retirement Portfolio Protected by Precious Metals Against a Stock Market Crash?
HSBC is a telling example and a flashing warning sign that stocks are too highly priced given that a global slowdown has already begun. When the stock market makes its inevitable correction back down, just as it did in 2000 and 2008, you will want to have diversified at least a portion of your retirement holdings into the time-tested precious metals and gold.
Because gold has a low correlation with the stock markets’ movements, it tends to gain in value (or at least hold its own ground) as stocks decline. This makes the yellow metal an ideal retirement and investment portfolio hedge.
It also means that you can count on gold to safeguard your retirement portfolio’s value as it has continued to do in one financial crisis after another. Click here to receive your Regal Assets’ no-cost, no-obligation gold IRA rollover kit in order to get all of the facts on protecting your retirement assets with at least a partial diversification into physical gold.