The fear of inflation has become one of the risks that explains the high volatility of the market at the start of the year, but there is another silent enemy that also threatens portfolios, the cryptoinflation.
Something that people have not fallen into is “cryptoinflation, which stems from the strong rises in cryptocurrencies,” said the magazine analyst INVESTMENT, Enrique Marazuela, in the finance.com podcast.
The term and concept is important to understand how rising prices have become the great threat to the global economy.
“In order to mine cryptocurrencies, you have to have a very large computing capacity. For this reason, chip prices have skyrocketed and there is a shortage in the market,” he stressed. Marazuela.
A scenario of controlled inflation
In this context of rising prices, one of the biggest risks on the table is the possibility of an “inflationary spiral” fueled by the well-known second-round effects on wages.
“It seems that this is more present in the United States, where we are seeing wage increases more than in Europe, where part of the inflation responds to the rebound in energy,” recalled the INVERSIÓN magazine analyst.
In Europe, investors may be a little calmer about second-round inflation. Although it is a risk, “today it is not a reality,” he said. Marazuela.
In the end, companies can bet on trying to make more sales and can adjust their cost base, before passing on the rise in inflation and crypto inflation to their prices.
In his opinion, it is foreseeable that inflation will moderate this year and that “we can move this year to figures of around 3 percent”, as long as oil prices moderate.
How should investors manage this scenario?
Thus, correctly managing this scenario of more moderate expectations in prices, but with the still latent risk of higher increases in digital assets and second-round effects, is a priority task for investors.
The first asset class not to look for are government bonds, since “they do not offer any value”, recalled Marazuela. Not even the ten-year-old German, although he has been positive.
When global economies have been heavily indebted, the situation has always been resolved by what is known as financial repression, that is, bond yields yielding less than inflation.
“We have this situation for a good season, also because the central banks are going to try to make this repression even greater,” added the analyst.
Then there would be corporate bonds investment grade, where spreads are too low, considering that central banks have been buying this debt.
This has compressed the margins to such an extent that “the liquidity premium that this debt had and that it was one more remuneration to invest in these bonds is not being taken into account.” And something similar happens with high yield debt.
In the emerging bonds there is value, but the danger is that the Fed will reduce its balance sheet. “This is bad news for emerging countries, which will have to raise interest rates to defend their currencies,” he said. Marazuela.
European equities as an alternative
In this environment, “the shares still have value, although the companies will have to be analyzed in detail,” the magazine’s analyst stressed. INVESTMENT.
In recent years, the big rises have been concentrated in technology companies and growth stocks, while the Cinderellas have been value companies, with high dividend yields and low multiples.
Therefore, there may be a rotation in this sense. “If this is what happens in the market, “it would be a better year for Europe than in the U.S, not because of growth rates but because Europe has a much higher value profile”, he recalled Marazuela.
Faced with the temptation of being in liquidity, the expert opted precisely for the opposite option. “Perhaps in corrections it would be a matter of looking for more positions in equities,” he said. Of course, he also opted to collect profits in the face of possible spikes.
The military confrontation in Ukraine is not the base scenario
Finally, Marazuela pointed out that the war in Ukraine is not his base scenario. “There are more and more possibilities for diplomacy and I get the feeling that Russia is not necessarily looking for a military confrontation either.”
With the experience of having lived through very serious geopolitical tensions in the markets, the analyst said that an armed confrontation between Ukraine and Russia “It would be far worse than the Gulf War.” But it’s not what you expect. “I think we are going towards a negotiation,” he added.
Precisely, the tensions in Ukraine meant that bitcoin lost a great opportunity to prove its worth as a safe haven asset.
For Marazuela it was not a surprise. It is still lacking for its maturity, to the extent that “there is no physical backing, as if bonds or shares have it,” he said.