How It All Ends

In 2012, I gave a speech at the New York Stock Exchange ("NYSE"). It was (not-so-humbly) titled "An Investment Script for the Next 20 Years."

At the time, investors were pessimistic...

The real estate bust had bottomed out around 2011. And the global financial crisis had devastated stock prices a couple years earlier.

The room was full of brilliant men who were mostly market skeptics at the time.

I didn't tell the crowd what they wanted to hear. Instead, I gave a bullish pitch for stocks. I also warned of the one factor that could end the bull market... eventually.

Today, almost 10 years later, that factor is now in play. I don’t expect it to crush stocks just yet. But it is one red flag we need to pay attention to today…

The crowd at the NYSE was certainly bearish. But I didn’t play into those fears.

Instead, I told them to get ready for an incredible run-up in asset prices. "Just round up... to infinity," I told them.

In fact, this is an actual slide from my presentation...

Back in 2012, the folks in the room might not have cared less. I don't know how many of them listened. But if they followed my advice – as we now know in hindsight – they would have done extremely well...

Remember, though, this was a 20-year forecast. So I included a slide or two on the great bust after the great boom – basically a forecast of what could be the tipping point.

Here is that slide...

I said the end would happen when inflation hits 5%. That was my yardstick.

For the last nine years, what I said at the NYSE about how it all ends seemed ridiculous... Inflation never got anywhere near 5%. And the last time we saw sustained inflation above that level was the decade of the 1970s.

As the years went by, it started to seem like inflation of 5% would never happen. But now, it has...

The November numbers are in... And the latest inflation figure just hit 6.8%. That's after a 6.2% reading in October.

I didn't believe it at first myself. I wrote in DailyWealth a few months back that the spike in used-car prices was temporary due to a shortage of chips for new cars... and that the hourly wage spike we've seen was temporary, too. But it seems I missed the mark...

We are now seven months in on inflation above 5%.

This is another slide from that presentation I gave in 2012. Take a look at what happened in the 1970s when inflation rose above 5%...

Each time inflation spiked above 5% in the 1970s, stocks did not like it.

Since 2012, stocks have been on a near one-way trip higher. And inflation was never a problem in that time. My prediction for how the crazy boom could end sounded silly – up until three months ago.

Now, inflation is here. It's sitting at 6.8%. Could it cause a problem in the stock market? Absolutely.

Before you get too worried, I want you to know 5% inflation is not some sort of infallible indicator. Its track record is probably not even good enough to give it credit as a true "indicator."

This was simply a prediction I made in 2012... in a preposterous 20-year forecast. So take it for what it's worth.

Despite my 2012 prediction, I don't think inflation will kill this bull market – today. But I do believe that today's inflation is one more red flag that we are much closer to the top than the bottom.

Good investing,

Steve

Further Reading

Stocks will eventually crash as a result of rising interest rates. But if you're afraid that rate hikes will kill the bull market, don't be. The truth is, we could see stocks soar higher in the near term... Read more here: A Fed Rate Hike Won't Immediately Crash the Market.

Investors turn to gold and silver when inflation rears its head. While they're typically safe hedges against rising costs, this asset has historically outperformed them by double digits... Learn more here: Go Beyond Gold and Silver With This Inflation Hedge.

Market Notes
BUILDING NEW HOMES HAS LED THIS STOCK TO TRIPLE-DIGIT GAINS

Today’s company is a big player in a red-hot sector…

Regular readers know that Steve is bullish on the U.S. housing market. With today’s low interest rates and a lack of inventory, demand has been high for homebuilders. And that has been great news for today’s company…

Toll Brothers (TOL) is a $10 billion luxury homebuilder. The company was founded in 1967, and it builds houses, condos, and apartments in 24 states nationwide. And as housing demand continues to soar, Toll Brothers is benefiting from the tailwind. The company just reported a year of record sales… Home sales revenues for 2021 were more than $8.4 billion, up 22% year over year.

As you can see, shares of TOL have soared over the past two years. They’re up roughly 430% since their March 2020 low, and they recently hit an all-time high. As the housing boom keeps picking up steam, companies like Toll Brothers should continue to thrive…