If you thought inflation is the worst thing that could happen financially as the world grapples with a post-pandemic recovery, then get ready for a deadlock.
The term has not been much needed since the 1970s.
Stagflation describes an economy that has higher-than-normal inflation and unemployment rates but little economic growth. The last time the US economy entered such a state was in the 1970s when former President Richard Nixon removed the United States from the gold standard.
The term has recently become a hot topic among economists and analysts again, and it is nothing to look forward to. With bitcoin viewed by many digital-asset investors as a hedge against inflation, and by others as a risky asset whose price could collapse during a subdued economic pull, the “S-word” may soon be the crypto-asset. The jargon of the markets could start to creep in. Description.
Since 1960, the Standard & Poor’s 500 index of large U.S. stocks has averaged +2.5% per quarter, but during the period of stagflation, it saw a decline of 2.5%, said Scott Bauer, a former Goldman Sachs trader who now Prosper is the CEO of Trading Academy. told CoinDesk.
With the Consumer Price Index rising 7.5% over the past 12 months, the highest inflation since 1982, analysts are already worried, and recent tensions in Eastern Europe have made things even more difficult. Oil prices rose above $100 a barrel after Russian President Vladimir Putin decided to invade Ukraine, and the prospect of losing access to other Russian goods is driving up prices for other raw materials as well.
“Stagflation is a reality,” said Bob Isino, chief strategist at Path Trading Partners and co-portfolio manager at the stock think tank. “Due to the positive correlation between crypto and the NASDAQ (it gets tighter and tighter over time) the stagflation playbook can certainly hurt crypto markets,” he wrote in a note.
He predicts higher demand for Treasury bonds, US dollars, gold, consumer staples and real estate, and he is bullish on small-cap stocks — companies with market capitalizations less than $2 billion — and tech.
“Bouts of inflation have historically been linked to declining profit margins, as companies face higher prices and declining sales,” Bauer said.
“In periods of inflation, the demand for defensive assets increases,” he said. “If rates rise and the economy slows, the price of many assets, including bitcoin, could fall.”