Welcome to our #86 weekly newsletter.
“For women taking control of their financial future”
-Jana Hlistova
From The Purse
In this week’s newsletter, we focus on what investors should do to hedge against inflation.
And we highlight the recent volatility in government bond interest rates and why Goldman Sachs is saying that investors should not sell their tech stocks.
You can review the news in brief so you stay on top of global financial, economic and investing trends.
And don’t forget to listen to The Purse Podcast interview with Paulina Tenner. She is a co-founder of GrantTree, an angel investor and an author. We talk about how to launch a VC fund and lots more.
I hope you enjoy this week’s newsletter.
Until next week,
Jana
What should investors do to hedge against inflation?
A poll by interactive investor indicates investors are worried about rising inflation
The Bank of England (BoE) has forecast inflation to rise to 4% before the end of the year.
And a poll of interactive investor visitors indicates that 61% of investors are worried about inflation and of these 18% are already making changes to their investment portfolio, as reported by Investment Week.
Here are more results from the poll:
84% noticed the impact of rising inflation in their day-to-day life
55% consider inflation one of the biggest threats to their personal finances
37% are investing more money into the stock market
22% are investing broadly in the belief that stocks can go higher
15% are buying value stocks
12% are reducing their market exposure due to inflation concerns
52% of the sample said their investment strategy has not changed
And 45% of respondents believe there are bigger issues to worry about.
So, how should investors respond to rising inflation?
As reported by Investment Week, investors should seek out inflation-linked assets.
Some exposure to inflation-linked bonds and real assets such as commodities, infrastructure and gold, is what Dzmitry Lipski, head of funds research at interactive investor suggests.
However, a broad, well-diversified, global equities investment portfolio is the ultimate inflation hedge.
Investors might also consider a commodity ETF which covers sectors such as industrial metals, precious metals, energy and agriculture.
And of course, effective low cost management is also crucial.
What to watch out for
The global stock market is considered to be overvalued at the moment. We are in what is often referred to ‘a market bubble’ and some expect the global market to crash soon.
In fact, Robert Kiyosaki, the American businessman, investor and author, said in an interview on Kitco News, that he expects ‘the biggest crash in world history’ to happen in October.
He says this is likely to affect all asset classes including crypto (Bitcoin). However, a market crash means that investors can start buying assets at a large discount.
Arguably many investors prepare for a market crash by holding more cash, waiting on the sidelines for when assets drop by at least 20% (before they start buying assets again).
Buying the dip is regarded as a good strategy and helps to accelerate returns. However, it’s worth remembering the old adage: ‘investing is about time in the market, not timing the market’.
Bitcoin as an inflation hedge
Bitcoin is the largest cryptocurrency in the world and is commonly referred to as a hedge against inflation and a store of value.
Investors such as Cathie Wood of Ark Invest and Michael Saylor of MicroStrategy, are very bullish on the future of Bitcoin and its price. Price predictions range from $500,000 to $1m++
Despite its volatility, Bitcoin has gone up approximately 200% per annum over the last 10 years. It has outperformed every other asset over that time.
Is Bitcoin a hedge against inflation? We think so.
Listen to this again:
The Purse Podcast interview with Marina Spindler on women in crypto
The Purse Podcast interview with Diana Biggs about Bitcoin, Ethereum & DeFi
The Purse Podcast interview with Bridget Greenwood and blockchain and crypto.
News in Brief
Financial news
Global stocks fell on Tuesday as as oil hit a 3-year high ($80 a barrel) and China’s energy crunch fuels concerns of higher inflation.
Yields on government bonds have risen dramatically since policymakers at the Federal Reserve and the Bank of England signalled last week that interest rate hikes may happen sooner than expected. (This has had an adverse affect on tech stocks in particular).
Eurozone inflation hits highest level in 13 years ie headline inflation came in at 3.4% last month. Although central bankers are saying the inflation is ‘transitory’, experts question that.
The Bank of England’s (BoE) Monetary Policy Committee is prepared to raise interest rates before the end of the year if inflation continues to rise. (Currently UK inflation is likely to reach 4% before the year end).
UK business confidence collapses as fears of ‘stagflation’ grow. Supply chain shortages and price rises could lead to the zero growth and high inflation seen in the 1970s.
Crypto: bitcoin, ethereum & DeFi
Bitcoin’s biggest jump since July: price shoots up to $48,000 (adding $4,000 within hours). See the current price of Bitcoin & ETH.
The US Federal Reserve’s Jerome Powell says Bitcoin will not be banned like in China. He differentiated between regulating stablecoins and banning bitcoin (and other cryptocurrencies).
El Salvador mines its first bitcoin with volcanic energy. Almost 22% of the country’s power market is geothermal.
Canada gets its first multi crypto ETF pegged to both Bitcoin and Ethereum. (Already four Bitcoin ETFs have launched in Canada).
Tesla CEO, Elon Musk said on Tuesday the US government should avoid trying to regulate the crypto industry. Musk said: ‘It is not possible to.. destroy crypto, but it is possible for governments to slow down its advancement’.
Solana NFT sells for $2.1m, breaking previous network record. The first Solana-based NFT sold for over $1m three weeks ago proving that the Ethereum blockchain is losing its dominion over NFTs.
Grayscale adds Solana, Uniswap to Digital Large Cap Fund. The market cap of $SOL and $UNI tokens are now about $48bn and $13bn, respectively, according to CoinGecko. (The new tokens join Bitcoin, Ethereum, Bitcoin cash, Litecoin, Cardano and Chainlink within the fund).
Why should investors not sell their tech stocks amid interest rate volatility?
A slower growth economic environment means that tech stocks long term are a good bet
On Tuesday, a spike in interest rates resulted in a sell off in technology stocks. But according to Goldman Sachs, investors should hold on to their technology stocks for the long term, as reported by Markets Insider.
What’s going on?
The yield on the 10-year US Treasury note (a benchmark for borrowing costs for companies and households worldwide) hit a 3-month high of 1.56% on Tuesday.
And the UK 10-year gilt yield briefly breached 1% (for the first time since March of last year).
Yields on government bonds move inversely to prices. Treasury prices have continued to fall as investors position themselves for a rise in interest rates by central banks; this will be sooner than expected due to rising inflation.
Why have rising bond yields affected tech stocks?
The move in yields has caused a sell-off in equities, with losses centred on tech stocks.
This is because many tech companies have borrowed at cheap rates to fuel growth. And their valuations are closely tied to the company’s prospects for growth (in the future).
If interest rates and inflation is rising, investors expect slower future growth and company valuations will be lower.
But according to Goldman Sachs…
…in a low economic growth environment, with historically low interest rates, a long-term horizon should support valuations for high-quality, high-growth stocks.
For now, cyclical stocks may outperform technology stocks, if interest rates continue to rise. However Goldman Sachs expects this to be more ‘muted’ in an environment with slower economic growth.
The Purse Podcast
Emerging female fund manager: how to launch a VC fund:
We cover the following in our conversation:
The world of startups
How to launch a venture fund
Engaging with investors
Investing for social impact
Paulina's journey as an angel investor
Advice for women who want to become an angel investor or a fund manager
And more.
Listen on all podcasting channels including iTunes and Spotify.
Coffee Break? Read This
We’d love to hear from you. Get in touch with Jana via the The Purse website or tweet @jointhepurse and @janicka.
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The Purse provides content for informational purposes only, we do not recommend products or services or provide investment advice. Please do your own research or speak to a financial advisor.
What should investors do to hedge against inflation, why should investors not sell their tech stocks amid interest rate volatility? And listen to the podcast interview with Paulina Tenner