Budget and Bitcoin
Market report
CIO view
Incoming quarterly corporate earnings have continued to unevenly bolster market morale. However, the wider context for this earnings season remains complicated to say the least. While central bankers and governments are more visibly preparing for a world beyond COVID-19, incoming case counts in many countries suggest that this latest coronavirus may still have other ideas. Even without the threat of another winter warped by the pandemic, the global economy remains harder than usual to read. Incoming data speak of some slowing momentum and a lot more inflation than we’ve become used to. But the question remains, how much of that will simply pass as supply chain pressures ease in coming months and workers return? The problem here is that satisfactory answers to these questions are not imminent. As we wait for more edifying information on growth and inflation trends, investors and commentators will of course try and fill in the enormous blanks. Now more than ever is the time to tune out the confident forecasters, in spite of the noisy comfort they might briefly provide.
Our suspicion remains that the world economy has simply too much pent up demand in its back pocket for stagflation to be your base case for the year ahead. As those supply chain pressures ease, we should find some of that pent up pressure released, allowing the world economy to accelerate a little again. That should not be your only imagined future all the same. There are, as always, multiple paths ahead from our current point in time, some better, some worse.
That sentiment is worth applying to the news from the UK this week too in truth. The Office for Budget Responsibility (OBR) provides the economic forecasts, which in turn set the wriggle room (or lack of it) for the Chancellor. A festive set of upgrades to the UK’s outlook from the OBR allowed a budget capable of satisfying the wide range of fiscal tastes embodied by the current Conservative Party. The point to reiterate here though is that what the OBR gives, it can also take away. The UK economy has much in its favour with regards to its long term prospects, from institutions to attractive specialisms. However, attempting a transition to a new economic model, based on much lower immigration among other things, would be bumpy at the best of times. We remain a little wary of the shorter term prospects for the UK economy.
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Finally, a reminder on Bitcoin. The cryptocurrency space has again been causing a stir these last couple of weeks with Bitcoin back around all-time highs. Congratulations to all of those who have managed to stay on this bucking bronco of a speculative asset. Nonetheless, we have not changed our views on it (or other intrinsically valued cryptocurrencies) with regards to its value as an investment. As many others have pointed out, the inherent contradictions remain. Since exchange began, the most valuable trait in a currency is stability. Buying something becomes very difficult if the value of what I can buy changes dramatically on my short walk to the shops. On the other hand, speculation would be pretty boring and pointless on an asset that is stable. There remain other problems of course, from energy usage to speed of transaction, some of which may improve over time. However, this inherent contradiction alongside the inevitable (and welcome) approach of hotter regulatory waters, make this a speculative asset to be extremely wary of. For those lucky enough to be sitting on chunky proceeds from the wild ride of the last few years, we would urge you to deploy at least some of them into more diversified, intrinsically better supported investments.
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