More Inflation & Crypto Pain

Nate Crosby |
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You get what you pay for

Now more than ever an investor has to understand how asset classes work within the market cycle and where you are at in the cycle. Over the years, many investors have gotten away with a passive strategy. When someone wonders why they would pay someone to manage their investments during a bull market, the answer might seem obvious on the surface. Today you might not find the answer quite so simple. You need an iron stomach if you are committed to passive investing. 

The most recent CPI (inflation) number was released on June 15, and we were expecting a slight decrease. Unfortunately, it was reported as 8.6% so despite rising interest rates and quantitative tightening (watch our video explaining quantitative tightening in less than 2 minutes), inflation is still going up. This is not the news we had hoped for because the FED will keep tightening the economy and it appears the dream of a soft landing is off the table. With keeping inflation under control as the top priority, we have to consider that a recession may be on the horizon. As we reflect on where the market is at today, it begs the question as to why this was such a blind-side for the Fed? 

As investors we are at a crossroad. With inflation continuing to climb and the Fed stating they don’t intend to lower interest rates until 2024, we suggest you take an informed approach to your investment strategy. You need to understand how asset classes react during different times in the cycle so you can determine the best time to make shifts. We study the market for a living and trust us, this can certainly be tricky. 

Crypto washout 

Speaking of an iron stomach, crypto investors are no stranger to the swings. Today, crypto markets are not as well-regulated as the stock market and one downside is that there is no breaker in place to stop massive selloffs. It’s important to remember that the crypto concept is still very new (relatively speaking), so the swings are somewhat expected. For example, Bitcoin was 65,000 per coin and now it’s down to 17,000 per coin (as of June 20). The upside is only the strongest crypto currencies will survive. 

When we think about the crypto swings, we can’t help but talk about price and value. Price is what you pay, and value is what you get. Take Bitcoin for example, as people come into the crypto space and adopt the technology the price will go up, but most investors will agree that the value isn’t the price. The value is the technology. 

Diversification – an example 

We recently had a raving endorsement to remind us as to why the modern portfolio needs at least 5 different asset classes. This was the scenario: 

  • A life event occurs where a family member needs to borrow some money 
  • This person needed to pull 10s of thousands of dollars out of their investment account
  • We were able to review their commodity position and found that they had plenty of money (triple what they needed) in assets sitting at a high point 
  • We were able to execute this and not impact their overall account

If you build a portfolio like that there will be times when you’ll look foolish – because you have uncorrelated assets some will act as an anchor, but you’ll have more consistency overall. 

In closing … some advice 

  • Just because something looks like a deal doesn’t mean it is
  • There really is no difference between being early or being late 
  • Mid-term trend is likely down 
  • Hold your cash, there will be opportunities soon

Times will be good again and opportunities will come but for now stay steady and remember your goals.