There’s no way to know for sure whether a recession is imminent, but for many Americans, it’s certainly starting to feel like it. According to Google, more people searched for the word “recession” in the US than at any other time in the past two years.
This was also the case before last Thursday’s Consumer Price Index (CPI) report, which showed inflation rose at a sharp annual rate of 8.6% in May, the highest reading since 1981. If we’re measuring inflation using the methodology of the 1980s, however, the figure is closer to 17%.
Commodity Price Shock Driven Bearish
The CPI report followed dreary economic projections by the World Bank and the Organization for Economic Co-operation and Development (OECD), both of which see growth suffocating from the conflict in Ukraine, which has caused the price of nearly every global commodity to rise, from coal. From wheat to oil, the sky is touching. According to the OECD, Russia and Ukraine together account for about 30% of total wheat exports, suggesting that the price of food may remain high for longer than initially expected.
in his Flagship June Report, The World Bank lowered its earlier global economic growth forecast to 2.9% in 2022 from 4.1%. “It will be difficult for many countries to survive a recession,” says World Bank President David Malpass. Other countries may be seeing a 1970s-style stalemate, the toxic result of extremely high inflation and unemployment.
OECD forecast, Although not so dire, it still sees growth weakening due to supply chain disruptions caused by the conflict in Ukraine.
Gold more defensive, Bitcoin more aggressive
If we are indeed on a bearish trend, and if it is primarily triggered by commodity price shocks, it may make sense to look at the price of one major commodity—gasoline—in gold, bitcoin, and S&P 500 stocks. Maybe which one has been the best to offer protection against rising prices over time.
I got this idea, actually, from the St. Louis Fed, who posted a surprising blog this week In which it compared the price of a dozen eggs priced in US dollars versus those priced in bitcoin. The reason for doing this was to show that, although bitcoin can buy you more eggs than the dollar in the long run, its value is much more volatile. (The blog post fails to mention, however, that the US dollar has lost almost all of its purchasing power since the Fed was created 100 years ago.)
The average cost of gasoline in the US is now above $5 a gallon for the first time. But what if it’s priced in gold, bitcoin, and the S&P 500? Below you can see the result.
EIA, S&P Dow Jones, Blue Among the three, bitcoin-denominated gasoline is the only one to have gained Cheap in the last five years. Both S&P 500 denominated gas and gold denominated gas have become slightly more expensive over the past five years.
It may appear that bitcoin is better able to provide cover from the effects of higher commodity prices than stocks and gold. But there are some considerations to be made before moving everything to digital assets.
The biggest consideration is that stocks and, to a large extent, gold have been around much longer than bitcoin. They have a track record of how they have performed in times of high inflation, high interest rates, and everything in between.
Bitcoin, by comparison, has only been around for 13 years. If it were a person, it would have just started puberty. Since being created, rates have not remained above 2.5%. We simply do not know how its price action will perform in a high-interest rate environment.
That’s why I often say that gold is ideal for older investors looking for a tried-and-true defensive position, whereas bitcoin is ideal for someone who has a long retirement horizon and who wants a more aggressive asset. Is.
Speaking of bitcoin, last week I attended the Crypto and Blockchain Consensus 2022 conference in Austin, where HIVE Blockchain Technologies had its booth. Enthusiasm for digital assets is overwhelming, and I am pleased to meet the many happy HIVE shareholders. You can watch a video on HIVE’s May production figures: Click here
Credit: www.forbes.com /