Does inflation fit in your pocket?

Except perhaps during two World Wars, he UK’s labour market has never had it so good.

That might be contrary to what you hear on the news of course. It seems that the flavour of the day is “shortages”.

However there are currently more than 1.1 million job vacancies to choose from. This is the highest figure since 2001 – when the Office for National Statistics (ONS) started keeping this record.

Businesses are fighting over workers, and are looking to tempt them in with higher wages.

In fact, it has all got a little bit out of hand.

High earning drivers and pickers

For example, some farmers are paying fruit and vegetable pickers £30 an hour. Or if you are happy to be qualified as a HGV driver, you can make in excess of £55,000 per annum in some vacancies that are available now.

That is not bad considering that the median annual household income in the UK is £29,900.

However, the current situation could actually have disastrous implications for the UK economy.

You need to ask yourself four questions when you’re seeing vegetable pickers and HGV drivers making almost twice the median household income, at the same time when jobs cannot be filled and when prices of goods and services are skyrocketing.

Question 1: why are these things happening?

Question 2: why are they all happening together?

Question 3: what does it mean for my income, purchasing power, investments and financial security?

Question 4: what can I do about it?

Don’t mention the “S-WORD”

Collectively, the answers to these questions point to greater likelihood of stagflation.

Stagflation is an economic event when there is tepid demand in an economy with soaring prices for just about everything.

The “stag” part refers to stagnating growth, the “flation” part refers to fast rising inflation.

This is not ideal for an economy, and not ideal for companies that exist in an economy with stagflation. However stagflation is something that has not happened much here in the UK.

It is a reasonable bet that policymakers who were doing whatever they could to boost economic growth – here in the UK and elsewhere – had little idea that they’d be taking their countries into a period of 1970s style stagflation.

Back then in the UK inflation peaked at 25%: inflation then remained over 8% for the best part of a decade, according to The Times.

While recognising that stagflation is a possibility but not a certainty, it is worth considering what consequences it could bring.

The 1973 OPEC oil crisis provides some hints.

OPEC, a Saudi-dominated intergovernmental cartel that controlled (and that still controls) much of the world’s oil supply, lifted its benchmark oil price by up to 70% in 1973. This move was punishment to countries such as the United States and the UK who had supported Israel during the Yom Kippur war.

Soaring oil prices choked output. Combined with other factors, this caused the cost of living to rise, triggering widespread inflation.

This inflation had a impact on  stock markets around the world. For example, consider what happened in the United States.

From 1 January 1973 to 1 January 1975, the S&P 500 fell by almost 39%.

From 1973, it would take eight years for the S&P 500 to return to its pre-oil crisis level.

Stagflation is bad news for stock markets for several reasons.

It normally results in yields on longer-dated (say three years or more) government bonds rising quite rapidly.

This can be disastrous for bond investors, because bond prices fall if yields rise.

Higher bond yields are also consistent with stocks being devalued (i.e. falling in price or rising by much less than they otherwise would have done.)

Moreover, stagflation also means that a lot of businesses are unable to pass on higher costs to their customers.

Profit margins get squeezed – and some companies go out of business altogether.

And, with the signs of stagflation looking ominous in the UK, the FTSE 100 could still come under some more downwards pressure. However that doesn’t mean that the whole market is set for pain.

Here at Southbank Investment Research, every one of our Editors is looking for stocks that can outperform – whatever happens.

As the very names of some of our publications – Frontier Tech Investor, Revolutionary Trend Investor, Exponential Energy Fortunes, Gold Stock Fortunes and New Drug Speculator – indicate, the details vary hugely  from case to case.

Our Editors take an active approach. They look for sectors that can outstrip the turmoil, and seek stocks that are in some way insulated from the rising costs of… just about everything. They often identify named stocks that are financially on a solid footing, that pay dividends, that still have room to grow and often come at a price discount.

There is something else which means that stagflation now would be very different to stagflation of the 1970s.

That something is a new and very rapidly developing asset class which provides investors with protection from the insidious combination of slowing economic growth and soaring prices…

1,000 sats* in your pocket

First, let’s go back about 20 years in time.

In 2001 Apple changed the very fabric of society with a single device that they called the iPod.

It was handheld computing for the masses.

Its core design was to enable people to play digital music from the device, up to 1,000 songs that could fit on the device.

It was a catalyst for the development of the smartphone, and the way in which we all communicate and interact today.

But when Apple released the iPod they didn’t sell everyone on the fact that it was a handheld computer with a 5GB hard drive, playing 160-Kbps MP3s.

They didn’t sell its features.

Instead, they sold the benefit: 1,000 songs in your pocket.

That was the game changer. In fact, it was a world changer.

Right now, you’re facing another game – indeed world – changing technology.

And often you’ll hear people talk about all the features of this technology.

Those features include its security, its blockchain foundation, its miners, its wallets, private keys, seed phrases, transaction networks, nodes, coding and much else besides.

But in reality you don’t care, and shouldn’t care about all that.

When it comes to bitcoin – and many other crypto-currencies – there’s only one thing you need to know.

That is: the freedom from inflation – or stagflation –  that bitcoin and the others offer.

You can fight rampant inflation, as well as market manipulation by central banks and governments.

Crypto is the escape mechanism.

It is your passport to freedom… and can also be in your pocket. [*In case you were wondering, there are 100 million sats in a bitcoin].

Until next time…

Sam Volkering
Editor, Exponential Investor

Elliott Playle
Junior Analyst, Exponential Investor