Monetary policy and inflation are at a historic juncture. Our Federal Reserve Chair, Jerome Powell, and his dovish regime have made a groundbreaking promise to let inflation ride past its 2% target level, justifying the action with the low level of 'average inflation' we've seen since the last financial crisis.
The average inflation rate since 2009 has been roughly 1.5%, and the Fed is now taking it into their own hands to drive the economy back into growth, sacrificing the 'stable prices' component of its "Dual Mandate," aka keeping inflation at a steady 2%.
Now Mrs. Dovish herself, ex-Fed Chair Janet Yellen, is preparing to be sworn in as Treasury Secretary under the impending Biden regime in the next couple of months. Her history of expansionary policy is escalating inflation concerns.
It may be time to start thinking about how to protect your portfolio and liquid capital against the deteriorating value implications of inflation.
Value Protection Plays To Consider Gold
Gold has been one of the primary vehicles of inflation protection since the US went off the gold standard during the Great Depression. Investors & traders have been driving the price of gold up throughout this pandemic. With interest rates plummeting and the Federal Reserve implementing one of its most expansionary policies in history, gold was able to surge to all-time highs past $2,000 an ounce.
Rising interest rates this autumn have inhibited the gold boon of 2020, but it looks like that is all turning around as the markets price in the inflationary implications of Janet Yellen as Treasury Secretary.
SPDR Gold Trust (
GLD Quick Quote GLD - Free Report) remains up over 20% for the year and looks to be headed higher as additional fiscal stimulus becomes more and more likely with COVID-case counts surging and local authorities shutting down Main Street again.
If GLD can break through its 50-day moving average (blue line) at around $176, I think this ETF has a lot more room to run.
The massive monetary expansion that the Federal Reserve employed has executives concerned about the value of their liquid capital, with future inflation expected to swell.
MicroStrategy CEO Michael Saylor made a savvy business decision when he decided to store his enterprise's liquid capital in Bitcoin. He made this judgment call in the face of ultra-low interest rates that were poised to eat away at MicroStrategy's cash reserve value. Jerome Powell and the Federal Reserve are printing money like there is no tomorrow and vowing to let inflation run past its 2% target to make up for the past two decades of below-target inflation.
MicroStrategy's management team feels that gold is an antiqued store of value and that Bitcoin's blockchain-driven cryptocurrency is the future of inflation-protected assets. This is a store of value strategy that I expect will be increasingly adapted through the roaring 20s.
Now fintech giants like Square (
SQ Quick Quote SQ - Free Report) and PayPal ( PYPL Quick Quote PYPL - Free Report) are buying up large sums of the pioneering blockchain currency. PayPal has been purchasing nearly 70% of all newly mined 'virgin Bitcoins' since mid-October and is expected to have over $30M worth of this digital asset by the end of the year. Combined Square and PayPal are purchasing more than 100% of newly issued Bitcoin as they launch their respective cryptocurrency services.
As more institutions pile into this next generation currency, the price should continue to drive higher. Below is a list of bitcoin holdings by company holdings provided by
MicroStrategy has given Bitcoin the corporate seal of approval with its $425B investment in August and September, an investment that has returned the company over $300B in just 4 months. This is more income than the business has produced over the last 7 years of operations.
MSTR is currently the largest publicly traded Bitcoin holder, with nearly 1/3rd of its market value being attributed to its BTC holdings. MicroStrategy is now selling $400 million in debt to buy more BTC.
Bitcoin is teetering at its 2017 high and looks like it's preparing to materially break into the $20,000s as the digital currency catches a big bid from institutions.
Investing in MicroStrategy is a good, hedged way to get exposure to Bitcoin's resurging price. Check out my recent
Bull of The Day piece on MSTR for more color. Final Thoughts
Inflation is coming, and Jerome Powell is making sure of it, now the question is what assets to use to protect your liquid capital. Bitcoin is a higher risk move but could provide you with strong inflation-protected returns as institutions start moving in on this cryptocurrency.
Gold has been the tried and true inflation protector, and I think it is worth holding at least some amid this unprecedented monetary expansionary period.
Biggest Tech Breakthrough in a Generation Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity. A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time. See 8 breakthrough stocks now>>