In our first article we described our methodology for looking at key metrics in the economy. We will be looking at Gold, M2 Money Supply, S&P 500, NYSE Composite, NASDAQ, and National Debt. We will be plotting these on timelines from year end 2000, 2010, and 2020. Just for identification we will refer to these as the long, middle, and short view of the data.
These views have a very different effect on people as they enter their peak wage-earning years, so it is important to remember our age groups and their ages at each of our measurement points.
Baby Boomers (1946 – 1964) – In 2000 their ages were from 36 to 54; in 2010 from 46 to 64; and in 2020, from 56 to 74. For most Boomers, the year 2000 was a good measuring stick because they were either in their peak earning years or approaching them. By 2010 and 2020 they were well into or even past their peak earnings years and could see retirement on the horizon.
Generation X (1965 – 1980) – In 2000 they were from 20 to 35; in 2010, from 30 to 45; and in 2020, from 40 to 65. Unless you were a real go-getter in 2000 as a Gen-X person you were not quite to your peak earning years. It is 2010 that we believe will resonate with the Gen-X crowd. By 2020 the Generation X crowd is either entering retirement or can see the finish line from where they stand.
Millennials (1981 – 1996) – In 2000 they were from 4 to 19; in 2010, from 14 to 29; and in 2020, from 24 to 39. The long view here will resonate with few or none. Their earliest real recognition of markets started with 2020, with 2010 being early employment years for many or late teens for others.
Generation Z (1997 – 2012) – In 2000 they were 3 or younger; in 2010, 13 or younger; and in 2020, from 8 to 23. Gen-Z will have no recollection of markets in 2000, and just a little in 2010 if they were born early in the generation. Even by 2020 most were too young to be major wage earners or not in the markets at all.
Obviously from this discussion we can rule out Generation Z since their impact on these numbers is yet to be felt. We also want to focus on people in their peak wage-earning years and have discussed only those who are 42. Obviously, this is a generalization of the issues using the exchanges as a whole and individual experiences may mimic these but not be exact.
Please remember that in each view it is the baseline number, the starting point that drives a person’s view of the financial world and their behaviors. Everyone’s personal experience will be different since few can buy the markets as a whole and keep those investments for twenty-three years. These are observations about gold versus the overall market indexes. Overall market movements often drive how we feel about the economy and how we have fared.
The graphs we present are important to this discussion and we encourage every reader to enlarge them for viewing. Each graph will open a separate window and not obscure the text.
The Long View
When we looked at the long view of the data for the first time there were some real surprises. In particular, the conventional wisdom of just sticking with the stock market because it always goes up in the long run, seems to us to fall away. This view is for people entering or already in retirement because in 2000 a person who is now sixty-five would have been forty-two and probably in or nearing their peak earning years. These workers are part of the Baby Boomer generation.
Over this twenty-three-year period from 2000 to 2023, only gold kept pace with growth in the national debt and the growth in the money supply. Reading the results, we learn that for every dollar of gold you bought in 2000 you now have $7.31. Contrast this with the S&P 500 at $3.11, the NASDAQ at $4.96, and the DOW Composite at $3.37. Only the NASDAQ came close to the results of gold with a surge in 2021, but then falling back to $4.24 in 2022. It then recovered to $4.96 in 2023 as the portions of the tech heavy NASDAQ started layoffs and earnings revisions went down.
Notable in the chart is the sharp rise in National Debt from the Covid Pandemic and then the tag along social spending that has helped fuel inflation. There is a lot of talk on the news about the FED working hard on inflation by raising interest rates and removing cash from the economy. The Baby Boomers might also lean away from stocks and toward gold because they saw the S&L Crisis in the 1980’s, the Dot Com Bubble in the 1990’s, the Financial Crisis in 2008, and the economic impact of the Pandemic. They have experienced a lot in their lifecycle, and it shows in their financial views and investments The Boomers have the scars to prove that markets do in fact go in cycles.
The FED’s effort shows up in the M2 figures that peaked in 2021 from all the pandemic spending, quantitative easing, and poor fiscal policy. But M2 started trending down since then as the FED works to get things back in balance. To get our economic system back in balance the M2 and National Debt numbers must be lower still.
The Medium View
A person who was forty-two in 2010 has a very different view of gold versus the stock markets. For them, the pundits who brag on the stock markets and denigrate gold have validity. These are Generation X workers who can remember only the Financial Crisis of 2008 and the recent issues from the pandemic. They were born between 1965 and 1980, and maybe they can remember the Dot Com Bubble from their parents or as they just entered the workforce, but for many their frame of reference is the flatness in the stock markets after 2008 and the sharp recovery in stocks that followed. This is the group that has seen great wealth from only the markets, and even with the current cooling in stocks they are way ahead of the game. For every dollar they put into markets in 2010 every category is up. The biggest gainer was NASDAQ, where a $1.00 investment returned $4.60. Contrast this with gold at only $1.66 and you can understand their perspective. The DOW Composite and S&P 500 also outperformed gold, so to them the stock market was and is the place to be invested.
For this group there is also a different view of fiscal issues. Schools now seem to do such a poor job of teaching economics and finance that the rise in national debt and M2 is interesting but seems irrelevant because their stock market gains have outstripped these problems. They probably understand that rising national debt and inflation are bad, but it is someone else’s problem in a far-off place called Washington. Inflation is uncomfortable for them, but they accumulated enough wealth to weather that storm barring some real catastrophe. Further job losses might get their attention, but nothing else we can think of will reshape their opinions.
This group also bridges us into the world of technology more than the Boomers and the rise in NASDAQ stocks probably has a lot to do with their overall opinions. Now that the NASDAQ has cooled it will be interesting to see how they feel in the coming years. The Boomers are the creators of much of the technology we use today, but it is the Gen-X and Millennials who exploit that technology in new and inventive ways. Gen-Z is both the beneficiary and victim of all this change depending on your perspective.
The Short View
A person who was forty-two in 2020 has yet a different view than either of the other two decades. This Millennial group may cycle back to a view of markets closer to the Baby Boomers than Generation X. More than the Generation X crowd, they have seen a quick boom and bust cycle from the pandemic and probably feel whipsawed by the stock markets. The NASDAQ, which has been the foundation of investing for Generation X, is proving, at least in the short run, to be a bad bet. For every dollar they invested in 2020 they now have $0.95 in the NASDAQ, $1.12 in the S&P 500, and $1.10 in the DOW Composite. None of these investments have kept up with inflation and all have slightly underperformed gold. They are just beginning to feel the pinch of inflation and contraction of the money supply.
This group is learning that even technology companies must make money and that issues like ESG are fun to push for, but at the end of the day profits matter more for building personal wealth. The younger end of this generation may be a group that understands finance and the value of capitalism the least. They have come through school with some very liberal socialist teachers and professors. How they view markets in the future will be interesting to watch.
For all of us we need to take what we see and hear from pundits with a grain of salt. Look at the age of the speaker and assess their views based on their age. To a greater or lesser degree, they are all selling their view of the market and it may not align with yours. Our parents, children, and grandchildren all have different opinions based on their experience with markets and the success or failure of their investments.
From time to time, we will update these comments and charts, but only when there is enough movement in markets to reveal significant data trends.
A special thanks to freeman and KalenHawke for editing and just some clarity in thought along the way on this one.