Entrepreneur, investor, and founder & CEO @VirtuseExchange
When the vastly inflated pandemic predictions hit the world, government officials across the planet shut down their local economies.
As soon as it became obvious that it was devastating, the central banks started printing trillions of dollars.
As a result, the Fed’s balance sheet has expanded by about 75% this calendar year.
Anyone who has ever studied an economics course knows that you will devalue a currency if you continue to create more of it.
That is precisely what is happening right now.
I would argue that we’re at the beginning of the inflationary spiral, all over the world.
Yet, demand is weakening for most products, and some experts predict that consumer prices will go down.
That might be true, but make no mistake, the main ingredient for inflation is here: the massive increase in the money supply.
Besides, inflation is actually hidden in asset prices rather than consumer prices.
So, what we do need to keep on our radar is asset price inflation instead of the Consumer Price Index (CPI) inflation.
Here are three assets that will help you survive and thrive during an inflationary period:
Gold breached $2,000 an ounce and climbed the all-time high ladder this month. It’s up by 27% this year.
It has been a leading indicator of inflation for centuries. And for a good reason: it does tend to hold the long-term value of wealth like no other asset.
Just look at what happened to the dollar.
Since 1913 the U.S. dollar has lost 99% of its value against gold.
Even the central banks around the world keep holding on to their gold.
That is probably due to Gresham’s law, which states, “bad money drives out good.”
When the money printing starts, central banks are more inclined to hoard gold (good money) and spend the currency that declines in value (bad money).
Goldbug Peter Schiff said that the Fed has already caused inflation through the expansion of the money supply. He wrote,
“Coronavirus just accelerated the process of the dollar’s fall, and there’s nothing that the Federal Reserve could do right now to preserve the dollar from falling.”
Of course, this fate applies to all government-controlled currencies.
Stocks surged 55% from their March lows, and the S&P 500 index is about to breach its all-time high.
Similarly, as in gold, the money printing has caused this rally in the midst of the lockdowns and crashing economies.
Equities are one of the best examples of how inflation is hidden in asset prices.
It all boils down to this...
As the stocks appreciate in value, it is not the stock that performs well, but the dollar that depreciates against the stocks.
Surging equities are merely reflecting a lack of market trust in the fiat currencies globally.
So when the Fed has decided to devalue the dollar, the age-old saying “don’t fight the Fed” holds steady.
In short, investors realized that there’s no point betting against the Fed and fled to other assets than fiat currencies.
That has been a winning strategy for decades.
Bitcoin is up 66% this year and is doing exactly what it’s supposed to do.
Hedge against chaos and inflation.
It’s a decentralized, borderless digital asset without government control.
Bitcoin network holds a 21 million coin maximum supply, protecting the asset against value dilution.
So, when the world governments print trillions of dollars, Bitcoin’s supply remains constant.
And it gets better.
The central banks and governments may lead to further upward Bitcoin prices.
Why is that?
Government lockdowns have woken up the world to the reality of digital currencies.
As Gemini crypto exchange co-founder and CEO, Tyler Winklevoss put it,
"The Fed continues to set the stage for Bitcoin's next bull run.”
My conclusion is that we are on the brink of a severe currency crisis.
And it actually doesn’t matter if we have inflation or deflation at this moment.
Here’s what I mean.
Investing is all about future expectations.
You merely need investors to believe that inflation is coming to see the assets increase.
For example, investors buy stocks, real estate, or fine art because they believe it will go up.
In the case of gold, bitcoin, or stocks, they buy them today because they’re expecting inflation.
And these inflation hedge assets will provide them protection.
So don’t be foolish.
Just look at what is already happening in Lebanon, Turkey, Iran, Venezuela or Zimbabwe.
All of them are already trying to save themselves from looming hyperinflation.
I am not ready to argue that we are on the brink of this happening in the developed world yet, but I am willing to argue that we are heading in the wrong direction.
Regardless of what you think the outcome will be, it is safe to say that holding dollars, euros, or yen will be a losing strategy at this point.
Ray Dalio stated, “cash is trash” in Davos this year.
He is likely more right than wrong.