Own physical things instead of cash. That’s the high-level advice Elon Musk has for anyone looking for advice on where to store their wealth when inflation is running high.
The Tesla chief tweeted in response to MicroStrategy CEO Michael Saylor’s prediction that inflation would persist at 40-year highs and investors’ flight from “cash, debt and value stocks to rare goods like #bitcoin will intensify”.
Musk seemed to agree, saying that “it’s usually better to own physical assets like a house or stocks in companies that you think make good products, than dollars when inflation is high.”
He added: “I still own and will not sell my Bitcoin, Ethereum or Doge.”
It’s an interesting comment given that Musk, who welcomed his second child this month with musician girlfriend Grimes, sold his seven California homes for $128 million and is currently renting here in Texas.
And no, Bitcoin, Ethereum, Dogecoin and other digital assets are not “physical things”. But for Michael Saylor, they are private property (unlike fiat money) and they are rare (like gold). Bitcoin supply is capped at 21 million, while no new Ether tokens are produced.
And did you know that the Ethereum network moved more transaction value than Visa or Bitcoin in 2021? Some $11.6 trillion was settled on the network last year, compared to $10.4 trillion for Visa and $4.6 trillion for Bitcoin, according to the Ethereum Foundation’s Josh Stark.
Money is trash
Still, Musk’s advice is sound. The value of cash is disappearing at an annual inflation rate of 7.9% right now, although I think that figure is much higher. Savings accounts earn a paltry 0.06% on average. Bond yields are underwater.
In fact, entire countries are dumping US dollars from their foreign exchange reserves. Although de-dollarization has been happening for a few years in places like Russia and China, I expect it to accelerate following the invasion of Ukraine by the former country and the imposition severe financial penalties. That should benefit the Chinese yuan, whose profile was boosted last week following reports that Saudi Arabia was considering pricing its oil sales to China in that currency.
The value of used homes and vehicles has skyrocketed
Meanwhile, home prices in the United States are up about 20% from a year ago, as measured by the S&P/Case-Shiller Home Price Index. The median cost of a single-family home is now north of $400,000 for the very first time. the the wall street journal reports that homeowners earned more from their homes than from their jobs last year.
By comparison, renters in the United States saw their housing costs increase by 17.5% in the 12 months ending in February 2022, according to data from Dwellsy. I guess Elon Musk, the richest person in the world, is not bothered by this increase.
Used vehicle prices have also continued to climb as the continued shortage of semiconductor chips slows production of new cars and trucks. In February, used vehicle prices rose 41% from the same month last year, according to the Bureau of Labor Statistics.
Unless we’re talking about collectible classic cars, used vehicles in general have rarely been viewed as stores of value, but such is the topsy-turvy nature of today’s economy. One Twitter user, Austen Allred of the Bloom Institute of Technology, even shared his belief that he could sell his 2019 Tesla Model 3 for “several thousand dollars more” than he bought it for, despite more than 20,000 miles on it. “I find it difficult to understand the current market,” he said.
Delta Announces 4% Wage Increase as Sales Rise
Musk insists on buying stocks of companies that you believe make good products. I agree, but I would not forget the companies that also provide good services.
That’s why we like commercial airlines, which are enjoying a strong recovery heading into the busy summer travel season. Delta Air Lines CEO Ed Bastian said this week he believes the “Covid era is over” when it comes to travel demand, and indeed daily passenger numbers in the United States are increasing. regularly, according to data provided by Transportation Security. administration (TSA). The carrier said it would give most of its employees a 4% pay rise, the first such increase since before the pandemic, after reporting it had its two busiest sales days last week in nearly 100 years of history.
Rate hike(s) Set up a buy growth opportunity
Finally, some investors may be wondering what impact this year’s rate hikes might have on their holdings. I have shown before that gold prices have historically performed well after the first rally in a new tightening cycle.
The same goes for stocks. That’s according to LPL Research, which looked at the three-month, six-month and 12-month returns of the S&P 500 after the first rate hike of every tightening cycle dating back to 1983. What the firm found is that stocks rose on average. —0.7% for the three-month period, 6.1% for the six-month period and 9.2% for the 12-month period.
It’s important to remember that rates are raised to fight inflation, which usually (but not always) correlates with stronger economic activity. These are good times to invest in growth.
|Future returns of the S&P 500|
|Date of the first hike||First Hike Size||next 3 months||next 6 months||next 12 months|
|Source: LPL Research, Bloomberg, US Global Investors|
Piper Sandler supports that. In a report released last week, the investment bank said it believes we are entering the growth phase of the market cycle as we put the worst of the pandemic behind us.
So what should value investors do? According to Piper Sandler, they should be as “growing” as possible, focusing on companies that demonstrate growth at a reasonable price (GARP). This means focusing on factors such as earned earnings growth, low sales variance, return on equity and earnings momentum. “Whether you’re into growth, value, or anything in between, these are the factors we believe are poised to outperform in this Phase 4 we call growth,” the bank writes.
We think gold is heavily undervalued right now, but where is its price going? Discover by watch our latest video here!
Originally published by US Global Investors on March 21, 2022.
For more news, insights and strategy, visit ETF Trends.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be suitable for all investors. By clicking on the link(s) above, you will be directed to third-party website(s). US Global Investors does not endorse all information provided by such website(s) and is not responsible for its/their content.
The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices of US companies. The S&P CoreLogic Case-Shiller National Home Price Index measures changes in the selling prices of single-family homes in the United States. It does this by tracking the purchase prices and resale prices of homes that have had at least two arm’s length transactions.
Holdings may change daily. Holdings are reported at the end of the most recent quarter. The following securities mentioned in the article were held by one or more accounts managed by US Global Investors as of (12/31/2021): Delta Air Lines, Tesla Inc., Visa Inc.
Learn more at ETFtrends.com.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.