According to long-standing investment perceptions, investors in stocks and gold have completely opposite risk preferences. Therefore, under normal circumstances, if the market exhibits risks, investors who hold stocks will sell; if the market performs If the output is stable, investors who hold gold will sell.
Then under what circumstances will these two types of investors sell their assets at the same time?
I have been thinking about this issue, because if this issue is not clear, we have no way to make an objective prediction of the performance of Bitcoin in the upcoming or unfolding storm.
The answer to this question suddenly became clear after reading an article "The Black Swan is Coming " The answer to the question is: Whether it is stock holders or gold holders, the judgment of the future has reached an amazing agreement .
Yes, it's deflation, not inflation.
This conclusion overturned my previous views and made me have to reorganize all recent events to see the essence of them.
In the case of deflation, the society no longer has demand, and the enterprise will be in depression. Therefore, the stock market does not have the fundamentals and fundamental motivation to rise, so stockholders sell stocks; in the case of deflation, the currency "appreciates" Therefore, gold's function of hedging and value preservation disappeared, and gold holders sold gold .
This scene also happened during the financial crisis in 2008, not long or short, but 8 months. From May 2008 to January 2009, both the US stock market and gold fell.
In the recent period, there is also a very strange phenomenon: that is, while gold is rising all the way, silver, which is also a precious metal, occasionally only rises slightly, but in most cases it falls.
This scene did not happen in the 2008 financial crisis, when gold and silver basically rose and fell simultaneously .
Why is this happening? If you use deflation to explain, the truth becomes clear: Silver not only has the properties of precious metals but also the properties of industrial metals. While gold is rising, silver is still falling, which can only show that the industrial metal properties of silver drag down the properties of precious metals.
Under the expectation of inflation, the industrial demand for silver will be greatly reduced, causing investors to be very pessimistic about the future price of silver .
This scene did not happen in 2008 but continued to take place during this period, which shows that investors are far more worried about inflation this time than in 2008.
Combining the current epidemic and the oil crash, we can better understand why investors are worried about inflation.This deterioration shows no signs of improvement in the short term. Therefore, more and more cities and countries will enter a state of lockdown in the future: lockdowns, lockdowns.Once demand is lost, the economy will enter deflation.
The reason why Russia and Saudi Arabia failed to negotiate is most likely because both parties foresee that the development of the epidemic will greatly affect the global economy, leading to shrinking oil demand.
In this case, production cuts will not help increase oil prices at all, so instead of reducing production, it is better to kill opponents to grab stock market share.
After Saudi Arabia issued a ruthless statement to increase oil production, Russia responded quickly and said: Russia will be able to maintain oil prices at the level of US$25-30 for ten years. Both parties are unwilling to show weakness and are preparing to fight a battle in the oil market.
Therefore, inflation is most likely due to this sudden epidemic happening globally. However, demand cannot be increased due to the spread of the epidemic.
Back to Bitcoin, this is the first global crisis that Bitcoin has experienced since its birth. Unfortunately, this crisis may not be inflation, but it is most likely deflation. As I have just analyzed, in the context of deflation, neither risky assets nor safe-haven assets will be favored, and only fiat currencies will be favored. Bitcoin currently does not have the circulation functions and attributes of legal currency, so it will not be favored like legal currency, so we can only consider it as a risk asset or a safe-haven asset. Unfortunately, whether it is classified as a risky asset or as a safe-haven asset, it will not be favored . So how will Bitcoin go in the context of inflation? Bitcoin may fall . So what should we do as investors?
As long as the expectation of deflation remains unchanged, except for cash, all other assets such as the stock market, precious metals and digital currencies will still maintain a downward trend. Although there may be a slight rebound in the middle, it will not change the downward trend.
But I don't think that deflation will be the end of this crisis, and once the expectations of deflation are no longer expected, then everything we see now will be reversed, and the digital currency will surely usher in light.
To straighten out these intricate factors, we can find the answer by looking back at history.
2008 financial crisis .
When the 2008 financial crisis occurred, the price of subprime collateral plummeted. This plummet was transmitted to almost all financial investment products and derivatives, resulting in a large number of financial assets held by financial institutions instantly worthless and unable to provide liquidity. The exhaustion of liquidity is transmitted from individual financial institutions to all financial institutions in an instant.
So we saw the collapse of Bear Stearns, then the collapse of Lehman Brothers etc.
The U.S. Department of the Treasury and the Federal Reserve could no longer sit idly by and immediately injected unlimited amounts of cash into the nation’s important financial institutions, provided them with liquidity, and pulled them back from the brink of death.
During the period when the liquidity of major financial institutions in the United States was exhausted, investors desperately sold assets to grab cash, which was exactly the same as inflation.
This situation did not improve until the Fed implemented quantitative easing for a period of time, and once the cash was abundant again, it began to speculate again.
Going back to this crisis, I think the current crisis has both deflation and liquidity tension.
Under the condition of deflation, no one wants what the company produces. Without income, cash flow becomes extremely important. So we saw that everyone was selling investment products and cashing in, and the more liquid investment products were selling more severely.
So when will this situation change? Only when the new crown epidemic is completely contained in the world and the needs of social life are released again will it change. Even if it is short of money, the government can turn on the money printing machine again and spread money on a large scale, which will start a new round of bubbles.
During this process, we will see that all investment products continue to fall. Until the epidemic is well controlled globally and people’s lives begin to return to normal, investment products will begin to stabilize, and then accompanied by large-scale money printing. The price of investment products began to rise . So what should we do as investors? I still think it is a fixed investment. We will continue to make sure that we can survive until the epidemic is under control . The current market is full of treasures: oil, stocks, and digital currencies etc. In the long run, they will explode in the future. Although they may fall in the future, there is a risk of short-term fluctuations .