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While investing in stocks or any other asset class in never easy, even at the best of times, we see the environment of the past year as being even more complicated and potentially volatile than any we have seen in at least the past decade. The worst global health pandemic in over 100 years, the fastest 35% decline in stocks on record (mid-February to mid-March 2020) and the sharpest economic downturn since the Great Depression hardly seem like the kind of stuff to send stocks soaring to record highs, but the reality is that is what has happened. Now investors have to decide whether the sharp moves higher, the extended valuations and the excessive levels of speculation are setting the stage for another ‘stock market bubble’ or whether stocks are just reflecting the reality that monetary conditions (interest rates) are going to stay extremely supportive of financial markets for a very long time. The ‘easy money’ conditions that were absolutely necessary in the early stages of the pandemic when economies were in a liquidity crisis have been continued by global central banks, which has fueled increased speculation in financial markets since the mass of new liquidity has nowhere else to go. The chart below shows the Goldman Sachs U.S. Financial Conditions Index, which has fallen to levels not seen in 30 years. (more…)