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The publication, Daily FX, believes that we could see crude prices trend higher: “Rising inflation expectations, supply constraints, and rebounding demand may pave the way for crude oil to extend its recent surge higher in the coming months”. In March we saw oil prices reach almost USD70, and it is not just oil prices which are climbing.
In February, copper’s price reached a ten year high, fuelled by demand from a surging Chinese economy. China has just reported a very impressive Q1 2021 growth of over 18% as its economy bounces back from COVID-19. Even the latest rising price concerns effect toilet roll, following shortages in 2020 when worries spread about potential shortages. One cause is lumber prices rising, demonstrated by Statistics Canada’s Industrial Product Price Index (IPPI): “Year-over-year, softwood lumber was up 118.9 per cent - the largest ever year-over-year increase posted by this product, since the series began in 1956.”
Meanwhile, the historical barometer of inflation - gold - experienced a seven-week high in its price. “Retail sales explode [for] March as consumers use stimulus checks to spend heavily," reported CNBC after the new data showed a record 24.4% year-on-year rise in shopping and food services purchases.
Equity prices continue to trade on optimistic Pes, as can be seen by the S&P 500 P/E Ratio of 39.90 - up from 34.24 last quarter together with 23.16 one year ago. This compares to an average PE of 15.92 for the S&P 500 . If we are indeed going to see higher inflation, then the one asset that ought to rise is real estate. According to Trading Economics, in the US house prices are up 12% and, in the UK, the UK government’s statistics are recording homes increasing on average by 7.5% (and up to 12% in some regions). According to Antony Abel, CEO at TrustMe Property Exchange, “The TPX™️ is seeing considerable demand for real estate in many of its global launch cities with quick sales at 4 -25% of previous property prices in specific property classes as buyers seek the safe shelter of bricks and mortar in the post stimulus, high inflation end of the economic cycle.”
The spectre of higher inflation looms, with commodity and house prices rising, and we have not yet looked at the massive fiscal stimulus that many governments have injected into their economies to stave off the impact of COVID-19. The Federal Reserve in the US has injected USD9 trillion into the American economy since September 2019. Estimates are that 22% of all the US dollars were only printed in 2020. In an article in the Guardian newspaper, the economist, Nouriel Roubini, is concerned about the prospect of stagflation, highlighting that “from trade wars and deglobalisation to ageing populations and populist politics, there’s no shortage of inflationary threats on the horizon”.
But what has the macro-economic backdrop got to do with Blockchain technology or digital assets? Without a doubt we live in very uncertain, but exciting times. It is unrealistic to assume the relatively benign rising equity and bond prices, and fiscal stimulus packages from governments, will continue for ever. A shock to the global economy, such as higher inflation, will usher-in demand for new policies and give rise to an increase in new assets. Blockchain technology - with its ability to offer greater transparency into the way governments, companies and society can function - is a powerful force and will no doubt be further embraced.
The ability to create digital assets from existing securities such as bonds and equities (not to mention offer new assets which can offer investment opportunities around data such as IP, consumers behaviour i.e loyalty schemes) are also set to become a greater part of many people’s portfolios. The spectre of greater trust from improved transparency, coupled with the ability to trade 24/7 with assets that enjoy greater liquidity, will prove to be a powerful combination for not only investors but regulators and compliance officers too. Regulators and compliance staff will be able to have real time information and use smart contracts to automatically report breaches and potentially rectify mistakes. This will enable them to focus on risk management as opposed to much of the box ticking monitoring and manual activity they currently face. We could therefore see a macro-economic shock, such as higher inflation, become the spur to usher-in changes and, ironically, it could be regulators and compliance departments, not IT sales departments, championing the greater use of Blockchain technology and the digital assets that this technology can facilitate.