On Wall Street in the U.S., there are prospects that inflation could be the biggest issue in the market this year. Some observers say that it will record the highest inflation rate in 30 years this year with the supply of enormous liquidity to resolve the economic downturn caused by last year’s Corona 19 (new coronavirus infection). As inflation concerns are growing, cryptocurrency Bitcoin is rapidly rising as a non-cash alternative asset, surpassing $30,000, and is on a high pace.
Wall Street “Inflation is coming, which we haven’t seen in 30 years”
Recently, among Wall Street experts, the expectation that prices may surge if economic activity resumes with the supply of the Corona 19 vaccine this year is dominant. On the 30th of last month, Jim Bianco, the founder of Bianco Research in the United States, expressed concern in an interview with CNBC, saying, “For the first time in a generation, high inflation will occur.”
Bianco predicted that the inflation rate would exceed the US central bank’s (Fed) target of 2% by 0.5 percentage points. He said, “It may be thought that the rise is not large, but the rate of increase in the core inflation rate (the price index measured excluding items whose prices fluctuate due to external shocks such as agricultural products and petroleum products other than grains) is actually the highest level that has not been seen in the last 28 years. “People have forgotten what inflation is because they haven’t seen inflation for almost a generation,” he explained. Bianco also added a warning that the stock market would be hit hard if prices rose and the Fed tightened up.
Investment banks (IB) also have forecasts for inflation this year. However, due to the sluggish labor market and falling prices of some commodities, inflation is expected to be difficult to sustain. Goldman Sachs predicted that the core inflation rate will exceed 2% in the first half of this year. Citigroup also predicted that the inflation rate will rise to 2% in April this year, continue for several months, and then fall back to 2% at the end of the year.
Bank of America (BoA) predicted an inflation rate of 1.8% this year and 2.2% next year. “Inflation may temporarily soar because of the base effect, but in the mid to long term, the weaker employment and the average inflation target will put a moderate upward pressure. You will receive it.” In August of last year, the Fed introduced an average inflation target system that would allow for a certain period of time without raising interest rates even if the inflation rate exceeded an average of 2%.
According to Dow Jones, the New York Fed surveyed the Consumer Expectation Index last November, and the median inflation expectations for the next year rose from 2.8% to 3%, the highest in one year and six months.
Bitcoin over $30,000… “It’s a bubble”
As inflation concerns spread in the financial market, investor sentiment is rushing to cryptocurrency that will protect against the decline in the currency value. Bitcoin price hit a record high, surpassing $30,000 for the first time on the 2nd.
On Wall Street, there are also bubbling arguments about the stock market supported by Bitcoin and liquidity. David Rosenberg, CEO of Rosenberg Research, who is known as a pessimist in the US stock market, said, “Even based on various indicators, the current stock market is overvalued at 20-30%.” did. However, he said, “Unless interest rates remain at the current level and economic activity retreats dramatically, the bubble will not burst in the near future,” he said. “You should know that you are investing in a bubble.” CEO Rosenberg chose gold as a safe asset to invest in in this situation.
Inflation beneficiaries are also drawing attention. Goldman Sachs predicted that “airfare, hotels, clothing, finance, etc. will rebound through direct and indirect disinflation.”
The BoA analyzed the relationship between inflation and stock returns every year from 1975 to 2019, and selected inflation beneficiaries of energy, industrial goods, and raw materials. The stocks introduced by the BoA included technology stocks such as Apple and Intel, as well as Boeing, Deer, Caterpillar, American Tower, and MGM Resort.
Reporter Seol Ji-yeon [email protected]