CNN Business/Paul R. La Monica
Bitcoin is surging as an inflation hedge, but don’t count out gold either
Inflation concerns have led to more volatility in the stock and bond markets of late. That should be good news for gold, a tangible asset with a limited supply that often does well in times of inflation. Central banks can always print more money. Miners can’t just magically create more gold.
But gold has recently lost some of its luster thanks to a new financial kid in town: bitcoin. Gold prices are down about 9% this year and are trading nearly 15% below the all-time high of more than $2,000 an ounce set last summer.
Meanwhile, bitcoin has soared nearly 70% and is currently hovering just below $50,000 per coin — not far from the record high it reached last month.
Still, fans of gold think the yellow metal is due for a rebound — even if bitcoin continues to march higher as well.
Gold is a classic fear trade. Prices rallied last year on worries about coronavirus lockdowns crippling the global economy. But gold also does well when investors are worried about inflation — as they are now.
Plus, the price volatility of bitcoin may make it less attractive than gold to many big institutions looking to protect their cash, despite recent decisions by the likes of Tesla (TSLA) and MicroStrategy (MSTR) to hold bitcoin on their balance sheets.
“Investors need a serious hedge against inflation, and bitcoin may not offer that,” said Ipek Ozkardeskaya, senior analyst with Swissquote, in a recent report.
Stocks are trading on reopening optimism but risks remain, Jim Cramer says
The stock market is riding on reopening optimism, causing tech stocks to fall and cyclical stocks to rise in Tuesday’s session, CNBC’s Jim Cramer said.
While the major averages were all down at the close, Cramer said the action was defined by a decline in consistent operators and a rise in sporadic boom-and-bust stocks.
“It’s all about optimism, people. Investors are voting with their feet,” the “Mad Money” host said. “They’re leaving these secular growth stories, the stocks of companies that do well regardless of whether the economy is running hot or cold. Instead, they’re finding their way to stocks of companies that only make big money when business is booming.”
The comments come after the overall market retreated from gains made on Monday, which followed a tough sell-off last week. The Dow Jones Industrial Average on Tuesday slid 144 points to 31,391.52 for a 0.46% drop. The S&P 500 pulled back 0.81% to 3,870.29. The tech-heavy Nasdaq Composite fell 1.7% to 13,358.79.
S&P sector indexes also traded lower during the session, with the exception of materials. Tech and consumer discretionary parts of the market had the toughest showing, with both indexes joining the Nasdaq in declining more than 1%.
Cramer said the market activity reflects investors betting on the odds that citizens can soon drop their Covid-19 protective masks and states can soon drop coronavirus restrictions and return the economy to normal, thanks to the country’s progress on the vaccine front. Still, a tug of war remains between those who are optimistic and those who are cautious, he added.
Texas and Mississippi governors earlier Tuesday announced plans to remove mask-wearing mandates and all restrictions on business activity within their states.
He warned, however, that the moment in the market is still vulnerable to risks. Cramer said the country could reopen too quickly and that variants of the virus, such as the strain first discovered in South Africa, could lead to another spike if the country lets its guard down.
While President Joe Biden expects to sign a $1.9 trillion stimulus spending package that’s making its way through Congress later this month, any hiccup in pushing the bill through the Senate could have an impact on the market.
“There’s still a lot that could go wrong,” Cramer said.
Silver is ‘the best trade’: It’s sporadic but prices could hit $60 this year, says ex-JP Morgan MD
Signs of inflation are already here, and the best trade in the short-term is silver, said ex-JP Morgan managing director and now CEO of Trovio, Jon Deane.
After receiving a wave of retail attention earlier this year and briefly trading above $30 an ounce, silver’s mainstream media coverage is fading. But keen investors are still buying up the physical metal, which is a sign that the physical silver squeeze is far from over, according to Deane.
“Short-term, silver is your best trade. There is a lack of silver around the world. There is not much silver at any refineries and getting your hands on physical silver is still difficult. There is a risk of a real silver squeeze this year,” Deane told Kitco News.
This year, silver is also a good leverage play on gold considering the supply issues as well as the climate change angle, which is why the precious metal is likely to outperform gold this year.
Deane does not rule out silver hitting $60 sometime this year. “Silver could trade $40-$50 and potentially $60 this year,” he said.
South China Morning Post/Orange Wang
China warns ‘side effects’ of US economic stimulus risk causing sharp market correction
The “side effects” of aggressive economic stimulus policies in the United States and other developed countries have started to surface in the US stock market, China’s top financial regulator warned on Tuesday, saying officials in Beijing were “very worried” that foreign asset bubbles could burst soon.
Guo Shuqing, Communist Party secretary of the People’s Bank of China (PBOC), identified the US market – the world’s largest – as the greatest bubble risk in the global economy when asked on Tuesday.
His comments are the latest in a string of warnings made by policymakers in Beijing about mounting external financial threats and their potential impact on the Chinese economy.
They also come as the US Congress moves closer to passing President Joe Biden’s US$1.9 trillion pandemic aid package, which would add to nearly US$4 trillion in US economic stimulus unleashed last year and liberal liquidity provided to American financial markets to support growth by the Federal Reserve.
Guo, who is also chairman of the China Banking and Insurance Regulatory Commission, said the extra liquidity in US and European financial markets from stimulus measures had pushed asset valuations above levels justified by economic fundamentals, risking a “serious run in the opposite direction”.
The stock market capitalisation to gross domestic product ratio, which famous US investor Warren Buffett described as “the best single measure of where valuations stand at any given moment”, reached an all-time high of 228 per cent in the US on February 11. That was higher than the level at the start of the dot-com crash in March 2000, according to an analysis by the blog Current Market Valuation.
The reading was also well above its long-term trend and suggested US stock market valuations were “strongly overvalued”, the blog said.