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The S&P 500 and home prices are at record highs, but when you price them in hard assets instead of dollars the “everything rally” disappears.
If you measure prices in dollars, this looks like the golden age for wealth. Nearly every asset class hovers at record highs. Yet that illusion fades once you look past nominal dollars to real purchasing power.
Since 2020, the US dollar’s purchasing power has fallen more than 20 percent while cumulative inflation has increased 25 percent. Meanwhile, the S&P 500 is up 106 percent, and home prices, as measured by the S&P Case-Shiller Home Price Index, have appreciated 52 percent.
That conundrum also explains why everyday Americans continue to feel downbeat about the economic outlook.
The record highs investors celebrate are as much a byproduct of a shrinking yardstick as genuine value creation.
Despite the S&P 500 doubling in nominal terms over the last five years, it’s collapsed in bitcoin terms, and remains down 13 percent when priced in gold.
The same pattern holds for home prices denominated in bitcoin and gold.
As the charts illustrate, this dynamic is not new, though the majority of global investors still haven’t caught on.
It was only last week JPMorgan strategists led by Nikolaos Panigirtzoglou published a note citing the “debasement trade” — the rise of gold and bitcoin in the face of persistent government deficits, inflation, and waning faith in fiat currencies.
Indeed, retail inflows into hard-asset ETFs have steadily increased while institutional positioning has lagged, suggesting the shift is being driven from the ground up, rather than top down.
Equity and property investors have been able to outpace currency debasement over the last five years, and that appears unlikely to change anytime soon.
Markets will continue to secure new all-time highs, though only in nominal terms. The debasement trade, now that it’s been formalized by JPMorgan, simply gives a name to what’s already been unfolding for years.
As long as the U.S. dollar remains in a structural bear market, the bull market in asset prices will keep feeling stronger than it actually is.
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Phil Rosen
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