𝕀𝕟𝕗𝕝𝕒𝕥𝕚𝕠𝕟 𝕧𝕤 𝕕𝕖𝕗𝕝𝕒𝕥𝕚𝕠𝕟 - 𝕙𝕚𝕤𝕥𝕠𝕣𝕪 𝕒𝕟𝕕 𝕙𝕠𝕨 𝕥𝕠 𝕙𝕖𝕕𝕘𝕖.
Head of FED Jerome Powell seems to be more and more worried about rising consumer prices while Cathie Woods, the CEO of ARK incest ($ARKK) speaks about the exact opposite future development - deflation.
Let's have a look at how the stock market performed in times of inflation and deflation.
The best time for the stock market is with mild inflation (<3%). It allows companies to pass rising costs (raw material, salaries, etc.) on to customers and the stock market usually outpaced the inflation.
On the other hand, higher inflation (>6%) usually depresses economic activity and tempers consumers' purchases. From the historic perspective, the stock market doesn't perform well in years with high inflation. On the other hand, it is easier for the US government to pay its debt. (Current inflation is 5.4%)
In times of deflation (falling prices of consumer goods and services), it was better to be a lender - it is better to save money than invest them which also leads to decreased economic activity and as you can easily guess, stock returns were terrible.
No matter who is right about future consumer prices, stocks are not a safe hedge against inflation nor deflation for 2022. They are vastly overvalued and statistically, odds start to be slightly against them.
There are several alternatives to stocks:
Cryptocurrencies like $BTC or $ETH are alternative assets to stocks. However, they are volatile and also present higher risks.
Precious metals like gold or silver (or ETFs $GLD , $SLV) are still considered as a hedge for inflation. When the US dollar weakens, its price (theoretically) should increase up and preserve value. The same is for miners like $NEM (Newmont Mining Corp)
$TIPS - Treasury inflation-protected securities that automatically go up in value when inflation rises. They could be also volatile (relatively to yields) so it is recommended to hold them for a longer period.
REITs - Real estate investment trusts - companies that own and collect rent from commercial and residential properties.
(Inspired by Jayson Zweig's commentary to "Intelligent Investor" book by Ben Graham 4th edition.)... Show More