Hey Market Pilots,
With the status of the economy at play every time an economic report comes out, sectors related to its performance have been moving around in all directions. If a report says the economy is weak for example, then value stock and gold rise. If the economy is strong, then growth stocks rise and gold goes down. But what if a strong economy throws in a few other variables like inflation and a strong dollar?
In this case, with a recent jobs report, we say that inflation outpaced workers’ pay increases, which means their purchasing power is being eroded. It means the very dollar they are earning is worth less each time they receive one for income. It’s as if we are on an economic treadmill that keeps going faster while we struggle to keep up.
A strong economy is good of course, but since so many things got thrown out of whack because of Covid-19, the consumer demand is putting stress in certain areas. The way the economy responds to this stress, or imbalance of supply and demand, is higher prices, also known as inflation. A little bit of inflation is good, but too much can create a spiral effect and get out of control. America has seen this not too long ago and it was devastating. A good swath of our population was alive through those times, so they are sensitive to any signs of its return.
A theory about how to hedge against that inflation and strong dollar is to look at a currency that can’t simply be created out of thin air by governments. This theory has been made a reality in the last few years in the form of cryptocurrencies due to the advancement of technology. With the most recent jobs numbers showing economic strength and a strong dollar, we saw a quick rise in crypto-related names and a smashing of gold. Who needs gold as a defense when the economy is strong?
While everyone has their opinion on cryptos, I am here to say that if you want to make money, we follow the charts. Cryptos are clearly in demand and it would be wise for us to find any investment vehicle that is appreciating during times like these to help protect us against inflation and our eroding purchasing power.
Your Profit Pilot, TG