According to the folks at Gallup, it seems that Americans have a decidedly more favorable opinion of socialism than they did in the first half of the 20th century.
Comparing their results with those of a survey conducted in 1942, Gallup found that 43% of those recently polled say that they “see socialism as a good thing for the country.” Contrast that with the numbers from a 1942 Roper/Fortune survey, which found that just 25% of Americans viewed socialism as something that would be good for the nation.
In its classic form, socialism exists where government controls the means of production. With more “watered-down” forms of the ideology – often referred to as democratic socialism today – capitalism purportedly still exists, but is subject to significant regulation. Another element of the new socialism is that the social “safety net” assumes a higher profile in society. It becomes a significant and profound component of a nation’s economic infrastructure, providing a greatly expanded inventory of products and services to the citizenry at taxpayer expense.
As more Americans continue to fall in love with elements of collectivism, it’s reasonable to assume one of the consequences will be significantly lower long-term growth rates among risk assets. In that case, investors should consider an allocation – or greater allocation – to select alternative assets that have the capacity to thrive when equities and other “paper” assets are suffering.
Long-Term Market Returns Already Diminished – and Expected to Drop Further
Even without the prospect of socialism gaining a meaningful foothold in America’s political, social and economic infrastructure, equity returns are expected already to be much lower in the foreseeable future. There are a growing number of predictions that the next 10 or so years will prove to be a “lost decade” for stocks as hyper-overvalued equities begin reverting to the mean.
We may, in fact, be in the “lost decade” already. Following 2017, a year that saw the S&P 500 post a near-22% total return, the index dropped 4% in 2018 and has returned only 1% over the past 12 months, with the outlook for the rest of 2019 very much in question.
Moreover, long-term equities returns have been falling for some time. Since 2000, the average annual total return of the S&P 500 has been just under 5.5% – considerably lower than the 10% annual total return the stock market has averaged over the last 100 years, and much lower than the 15%-per-year figure posted by the S&P during the now-legendary final two decades of the 20th century.
But these diminished returns will likely be nothing compared to what’s in store for investors if socialism is prominently reflected in the nation’s economy.
“Real” Socialism Could Tank GDP by 40%
According to an Investor’s Business Daily article, the president’s Council of Economic Advisors (CEA) has determined that genuine socialism, complete with nationalization of major industries, price and currency controls, rationing and other associated pleasantries, would likely trigger a 40% drop in gross domestic product (GDP).
And those supposed socialist utopias playing out in Scandinavian countries? The truth is that Sweden, Finland, et al. have largely reinvented themselves as market-based economies following the height of their socialist experimentation in the 1970s. But even if the 1970’s “kinder, gentler” version of Nordic socialism did make its way to America, the CEA says it would prompt a 9% drop in real GDP and reduce the average American household income by almost 20% – numbers that would certainly be antagonistic to equities growth.
As most investors surely realize, even the more regular challenges to earning money in the years to come will be daunting. But if America does, in fact, see the manifestation of legislative measures more reflective of a collectivist society, the result may prove to be the greatest shift in the nation’s political and economic “center of gravity” in all of her history.
Physical Gold and Silver Remain Reliable Portfolio Safeguards
One option to guard your portfolio against the possible fallout of creeping Socialism is including physical precious metals among your assets. Gold and silver have a demonstrated track of record of thriving when the economy and mainstream financial markets do not. For example, during peak years of the global financial crisis, such as from 2008 to 2011, the price of gold increased by over 100% and silver soared almost 400%. And during the turbulent 1970s, viewed by many experts as America’s worst economic decade, gold and silver appreciated a stunning 1,500% and 2,100%, respectively, while the stock market grew just 2% over the entire 10-year period.
As the investing landscape grows less predictable, it will be exceedingly important that your portfolio includes alternative, safe-haven assets such as gold and silver as a part of its core holdings. There’s simply no good reason to be deprived of the peace of mind – not to mention actual protection – that can prove so elusive to investors who keep their portfolios entirely concentrated in equities and the other risk-prone paper instruments.
