Currently, commodity prices are the cheapest they’ve been in over 40 years compared to equity prices. US Equities have continued to rise over the past 7+ years due to a number of external processes. QE1, 2, 3, and Fed Debt Purchases Share Buy-Backs and creative credit facilities. Only recently have investors really started to pile into the US stock market (see charts below). Global investors were very cautious throughout the rally from 2011 to 2016. In fact, the amount of capital invested within the US money market accounts was relatively flat throughout that entire time.
It was only after the 2016 US presidential election that investors really began to have confidence in the global economy and started piling into the US stock market and money market accounts. This was also after the time that Oil began to collapse (2014~16) as well as the deflation of Emerging Markets rallies. With all this new money having entered the global markets and equities being extremely overbought currently, what would happen is Oil collapsed below $40 and the global economic outlook soured headed into the 2020 US presidential election? (read more here)
Read Part II here
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