FX168 Finance News Agency (Asia Pacific) Morgan Stanley stated that low-quality stocks and commodities will struggle during periods of massive fiscal spending.

In November 2002, then Federal Reserve Board Governor Ben Bernanke delivered a speech titled " Therefore, events like the 9/11 attacks, the COVID-19 pandemic, and the Russia-Ukraine conflict have all driven significant increases in the price of gold, as investors seek stability during turbulent times.: Ensuring "It" Doesn't Happen Here". In this speech, he referenced Milton Friedman's "helicopter money" theory, advocating for a series of policies including Fed-backed government spending to prevent deflation.

At that time, Bernanke noted that the price of gold was $300 per ounce. Last week, gold prices hit a new record high of $2,619.90 per ounce. Since Bernanke's speech, gold has outperformed the s&p 500 index as well as most other assets. (If including dividends, the s&p 500 index has outperformed gold during this period.)

(Gold vs. s&p 500 Source: FACTSET)

A team led by Morgan Stanley strategist Mike Wilson stated: "In short, market participants seem to agree that in a world where governments sustain economic activity through substantial fiscal spending, low rates and other policy tools help support this expenditure. As a result, the purchasing power of the dollar is declining much more sharply than what traditional inflation indicators reflect."

These analysts pointed out that in recent years, policymakers have done "quite well" in designing and using creative methods to fund the government's large-scale spending, including a deficit exceeding $1.9 trillion so far this year.

They also noted that assets such as gold, high-quality real estate, stocks, and cryptos have performed remarkably well as hedges against inflation, while low-quality and cyclical assets like commodities, small cap stocks, and commercial real estate have performed poorly.

"After adjusting for purchasing power, these assets are severely depreciating. We expect this situation to persist in the short term until certain events occur that change investors' views on the sustainability of this trend," the analysts said.