Since the financial crisis of 2008 and the resulting QE, financial assets have significantly outperformed real assets. The following chart shows just how extreme this outperformance is:
Interest rates now around their limits at the zero bound, new policies are being considered (MMT) which are said to be much more inflationary.
The last time we were in an inflationary environment was 1970s, equities were shunned and commodities performed very well. My thesis is that in the near future, the bear market in real assets will end and they will once again outperform.
Considering the ~10 year underperformance of commodities in the above chart, revision to the mean that they could be a good place to be.
In the event of a recession, my expectation is for the value of real assets to drop as well as equities. If they were to fall, then they’re falling from a low base and I’d expect a quick recovery. Equities could take a decade to recover.
I plan to expand on this theme in the future. In the meantime, here’s an interesting post from GoRozen.