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georgecmatthews · 4 years

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What could the US-Iran conflict mean for investors?

After the US killing of Qassim Suleimani on Jan. 3 and Iran’s retaliatory, non-lethal missile strike against two US military facilities in Iraq on Jan. 7, the situation appears to have de-escalated. However, investors continue to worry about the potential for this conflict between the US and Iran to worsen. We do not believe that a war is likely at this juncture, but it is important to understand the potential effects that such a worst-case scenario could have on the markets.

War has usually led to a bear market …

Historically, serious military conflict has been one of the more reliable triggers for an equity bear market in the past hundred years. Our team has analyzed various factors that have contributed to bear markets since 1915,1 and there has been a high historical correlation with times of war. There were 28 equity bear markets between 1915 and 2018. War wasn’t a factor in all of them (only about 30%). But, when war was happening in the world, a bear market followed about 80% of the time — higher than other factors such as recession, rising unemployment, an inverted yield curve, and rising inflation. In other words, war isn’t a necessary condition for a bear market, but it has historically been enough to trigger one.

This has been especially so for conflicts in the Middle East that threaten oil supplies (a sharp rise in oil price affects business and consumer spending, compounding the economic damage). A case in point is the Yom Kippur War of 1973, which resulted in a major rise in the price of oil and a crushing of the global economy and stock markets.

… but stocks have tended to rebound relatively quickly

However, there is more to the story. In a similar analysis, we looked at equity performance for five of the wars during this timeframe (World War I, World War II, the Cuban Missile Crisis, the Yom Kippur War, the Kuwait War and the Iraq War).2 We found that the US stock market typically bottomed within 12 months of the tension becoming apparent (which was usually before the outbreak of war), and, most importantly, typically returned to its pre-conflict level within 18 months.2

Additionally, we think it is worth pointing out that the world today is not as dependent upon Middle Eastern oil for energy as it has historically been, given the dramatic increase in oil production from the US. What’s more, the global economy is less dependent on oil in general — it is just less energy intensive than it was just a few decades ago. That could also mitigate any negative economic effects resulting from a major conflict between the US and Iran.

What could continued US-Iran conflict mean for investors?

And so, as news flow around the US-Iran conflict continues, we should be prepared for the possibility that the situation may worsen. If it does, we would expect to see an impact on various asset classes. In our view:

A sell-off in risk assets would be likely, especially the stocks of energy-intensive companies and markets in the Middle East.

We would likely see “safe haven” asset classes such as gold, Japanese yen, Swiss franc, and US Treasuries perform well.

Although the world is less energy-dependent on the Middle East, we would still expect to see a significant rise in the price of oil (and related energy commodities) and relative outperformance of sectors such as oil & gas and utilities (many of which have tariffs related to wholesale energy prices).

Among factors, we would expect low volatility stocks to outperform during periods of risk aversion.

Among emerging markets, energy users (such as China and India) would likely underperform non Middle East energy producers (such as Russia and Mexico). The Russian stock market has been cheap (with dividend yield exceeding price-to-earnings ratios) and is heavily weighted in energy sectors, suggesting significant potential to benefit.

The Russian ruble and Mexican peso could also benefit for the reasons mentioned in the previous bullet point.

Finally, we could see US high yield bonds holding their ground. This asset class could be hurt by heightened risk-aversion, but it has a significant weighting in the energy sector, which could help it.

It is worth noting that the Federal Reserve has a very accommodative stance, as do many major central banks. That should help render any risk asset sell-offs shorter and shallower.

Conclusion

In summary, we suspect tensions between the Iran and the US will continue but remain contained, and we believe an actual war is highly unlikely at the moment. However, it’s always good for investors to be prepared. Thus, it’s important to remember both the market implications of past wars and Middle East conflicts, as well as the ways in which the world has changed since then.

With contributions from Tomo Kinoshita, Global Market Strategist for Japan.

1. Based on the 28 years from 1915 to 2018 when US equity total returns were negative or when equities ranked among the bottom third of assets. We calculated a total return index for broad US stocks based on index and dividend data from US academic Robert Shiller and Datastream. Equities prior to 1926 represented by Shiller’s recalculation of data from “Common-Stock Indexes,” 2nd Edition, published by Cowles & Associates in 1939. From 1926 to 1957, the Shiller data is based on the S&P Composite Index and thereafter is based on the S&P 500 Index as we know it today. The following wars were used in the analysis: WWI, WWII, Korean War, Suez Crisis, Cuban Missile Crisis, Vietnam War, Yom Kippur War, Iraq invasion of Kuwait, and allied invasion of Iraq.

2 Sources: Robert Shiller and Invesco analysis. Based on the monthly performance of the US equity market (as defined in Footnote 1) from the onset of tension leading up to the following events: WWI (July 28, 1914, to Nov. 11, 1918), WWII (Sept. 1, 1939, to Sept. 2, 1945), Cuban Missile Crisis (Oct. 16, 1962, to Oct. 28, 1962), Yom Kippur War (Oct. 6, 1973, to Oct. 26, 1973), Kuwait War (Aug. 2, 1990, to Feb. 28, 1991) and the Iraq War (March 20, 2003, to Dec. 18, 2011). An investment cannot be made directly into an index. Past performance is not a guarantee of future results. There are no guarantees that the historical performance of an investment, portfolio, or asset class will have a direct correlation with its future performance.

Important Information

Blog header image: Bisual Studio/Stocksy

The yield curve plots interest rates, at a set point in time, of bonds having equal credit quality but differing maturity dates. In a normal yield curve, longer-term bonds have a higher yield. An inverted yield curve is one in which shorter-term bonds have a higher yield than longer-term bonds of the same credit quality.

Safe havens are investments that are expected to hold or increase their value in volatile markets.

Factor investing is an investment strategy in which securities are chosen based on certain characteristics and attributes. Low volatility describes investments that consistently demonstrated lower volatility than securities in the same asset class. Low volatility cannot be guaranteed.

Risk assets are generally described as any financial security or instrument, such as equities, high-yield bonds, and other financial products that carry risk and are likely to fluctuate in price.

All investing involves risk, including the risk of loss

The opinions referenced above are those of the authors as of Jan. 13, 2020. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations.

from Expert Investment Views: Invesco Blog https://www.blog.invesco.us.com/what-could-the-us-iran-conflict-mean-for-investors/

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super-alan-3-us-blog · 5 years

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BMC Answers (Bloomberg) 2019

http://assignment.store/products.php?product=BMC-Answers-%28Bloomberg%29-2019-

Economic Indicators

The Primacy of GDP (30 min.)

Knowledge Check 1

How accurately do GDP statistics portray the economy and why?

Knowledge Check 2

Consider the formula GDP = C + I + (X-M). A country is undergoing a boom in consumption of domestic and foreign luxury goods. In one year, the dollar growth in imports is greater than the dollar growth in domestic consumption. Assuming nothing else has changed, what happened to GDP?

Knowledge Check 3

Here is the most important economic data for Australia and Sweden. Which economy did better year-over-year (YOY) in the fourth quarter of 2013 compared to the fourth quarter of 2012? Use the two charts to investigate.

Knowledge Check 4

In the US, why is there a strong correlation between unemployment and GDP?

SECTION QUIZ

Here is a chart showing both nominal GDP growth and real GDP growth for a country. Which of the following can be a true statement at the time the chart was captured?

Which of the following lines is the best leading economic factor?

The “misery index” is often cited in the media as a way to measure consumer pain. It is defined as the inflation rate plus the unemployment rate. Review and identify the country with the highest “misery index.”

What typically happens to nonfarm payrolls, the PMI indicator, and housing starts at the onset of a recession in the United States?

Monitoring GDP (10 min.)

SECTION QUIZ

Which of the following qualities of economic indicators do investors prize the most?

Why is the release of GDP statistics less interesting to investors than the release of other economic indicators?

Which of the following important U.S. economic indicators is only available on a quarterly basis?

Which economic indicator is most directly linked to unemployment?

Forecasting GDP (20 min.)

Knowledge Check 1

Here is the economic calendar for the UK for August 2013. Examine indicators like PMI, house prices, industrial production, employment, retail sales, and GDP. Based on these major indicators, how did the UK economy perform overall?

Knowledge Check 2

This chart was captured in mid-2014. At that point in time, which of the following terms would have described the growth in the Chinese economy predicted in this pop-out table?

Knowledge Check 3

How have economic forecasts for this economy evolved?

SECTION QUIZ

These charts show data for four countries as of early 2016. For each country, the purple line denotes historic real GDP growth. The white line denotes the consensus estimated real GDP growth. The red line denotes the most pessimistic analyst forecast. The green line denotes the most optimistic analyst forecast. For which country is there the most controversy among the analyst community about 2016 growth?

What is the main reason that investment banks create estimates of economic indicators?

Which of the following is the biggest pitfall of economic indicators?

Here is a chart displaying estimates of the initial jobless claims indicator, one of the main unemployment statistics in the U.S. It measures the number of new applicants for unemployment benefits. What was the level of the analyst with the most optimistic outlook?

Currencies

Currency Market Mechanics (25 min.)

Knowledge Check 1

Which country is both the fourth biggest importer and exporter?

Knowledge Check 2

In 1994, the Mexican peso declined against the U.S. dollar during the so-called “Tequila Crisis”. What exacerbating factor did Mexico’s “Tequila Crisis” have in common with the Argentine crisis of 2002?

Knowledge Check 3

Using the given chart, how many New Zealand dollars (NZD) can you buy with 100 Australian dollars (AUD)?

SECTION QUIZ

Allison lives in America and has just retired. It is early 2016. She has long had dreams of cruising the fjords on the west coast of Norway, visiting Buckingham Palace in the United Kingdom, seeing the cherry blossoms in Japan, and going to the top of the Eiffel Tower in France. She last considered all four options on New Year’s Day 2008. She would like to select the trip to go on based on which country’s currency has subsequently weakened the most against the U.S. dollar. Where should she go on vacation?

Review the currency pair charts for the Barbadian dollar against the Jamaican dollar, the Czech koruna against the Polish zloty, the Nigerian naira against the Ghanaian cedi, and the Hong Kong dollar against the Macanese pataca. Which pair is pegged.

Which of the following is NOT an example of a failed peg?

Use the chart below to answer the question. How many Danish crowns (DKK) will buy 100 Japanese yet (JPY)?

Currency Valuation (20 min.)

Knowledge Check 1

According to this Big Mac index screen, which of the following four countries’ currency is the most undervalued?

Knowledge Check 2

What generally happens when a central bank unexpectedly increases interest rates?

Knowledge Check 3

Which driver weakened the Swiss franc?

SECTION QUIZ

What does the Big Mac index show?

Which of the following are short-term drivers of currency valuation?

By what mechanism do interest rates affect currency values?

Which of these headlines could move a currency pair?

Central Banks and Currencies (15 min.)

SECTION QUIZ

What is the most common target inflation rate for an advanced economy?

What was the primary goal of Abenomics?

Here is the deflationary cycle. What steps connect the lower left gray arrow to the upper right blue arrow?

Were the two oil crises in the 1970s linked to deflation or inflation?

Currency Risk (15 min.)

Knowledge Check 1

On June 23, 2016, the UK voted to leave the European Union. The white line shows the UK’s main equity index, the FTSE 100, from the start of 2016 of the date on which the UK government notified the European Union of its intent to leave. The orange line shows the number the number of dollars it takes to buy one pound sterling. The UK is a net importer, meaning the value of imports exceed the value of exports. What can be reasonably surmised from the chart about large UK corporations?

Knowledge Check 2

In early 2016, the same Germany machinery company has interest from four prospective clients from emerging markets: Indonesia, Brazil, Russia and South Africa. They all want to buy ten machines, but the factory can only produce ten in time. Therefore, the company has to choose only one client. Given the volatility of the domestic currencies of the four prospective clients, the CFO would like to choose the client which is least likely to cancel the order due to currency volatility. The invoice comes due on June 30, 2016. According to historical currency volatility alone, which prospective client would be least likely to cancel the order?

Knowledge Check 3

What is the median estimate for the number of Japanese yen per euro for calendar year 2020?

Knowledge Check 4

What is the different between Nomura and RBC’s estimate for the Japanese yen/euro currency pair for the end of Q1 2018?

Knowledge Check 5

Imagine you are a Dutch diamond dealer who sources diamonds from South Africa. It is March 2016. A new mine is being dug in South Africa and you have agreed with the miner to buy one million South African rands’ worth of diamond a year from today. Therefore, you will need one million rands in cash in one year’s time. The miner wants you to demonstrate your commitment by either giving him a million rands now or providing that you have an FX forward contract for the full amount. Currently, the exchange rate is 17.1 rands to the euro. You check the forward rates on offer on the Bloomberg FRD function.

You have two options. Exchange euros today at today’s exchange rate to pay him one million rands now, or lock in a forward agreement to convert euros to one million rands in one year’s time and share the forward agreement with him. If you were to do the forward instead of exchanging euros for rands today, approximately how much more or less would you end up with in a year?

SECTION QUIZ

Why would Jack Welch suggest putting all company plants on barges?

Samsung is based in South Korea and reports in South Korean won. Samsung sells its products around the world and the geographic breakdown of its 2015 revenues is in the first chart. The other charts show how some major world currencies moved against the South Korean won through the course of 2015. Of the currencies shown, which currency movement boosted Samsung’s revenue growth the most?

Legendary investor Warren Buffet said, “Gold gets dug out of the ground… Then we melt it down, dig another hole, bury it again, and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.” Based on this quotation, what quality of gold is he referring to?

Which of the following options is the best way for investors to manage currency risk?

Fixed Income

The Roots of the Bond Market (25 min.)

Knowledge Check 1

What do the green bars at the bottom signify?

Knowledge Check 2

According to the table, who owns approximately 1.3% of actively traded US debt?

Knowledge Check 3

What quality of US government bonds causes investors to buy them when market volatility rises?

Knowledge Check 4

Why is fixed income called fixed income?

SECTION QUIZ

Why does the United States have a strong reputation for creditworthiness?

What is one reason why foreign governments lend to the U.S. government?

What does one yellow bar depict in this debt distribution diagram?

Which one of the following actors benefits when interest rates go up?

Bond Valuation (50 min.)

Knowledge Check 1

When investors doubt the creditworthiness of a borrower, how do they alter their calculation of the bond yield to take into account these doubts?

Knowledge Check 2

As a general rule, what percentage of debt to GDP will make a government bond yield spike?

Knowledge Check 3

What is true of both the UK and the US?

Knowledge Check 4

Which would you prefer?

Knowledge Check 5

Which would you prefer?

SECTION QUIZ

What is the primary reason for U.S. government bond yield to ripple through the bond market?

A rise in which of the following measures would typically send a government bond price up?

Which of the countries shown makes the greatest relative use of short-term government financing?

How do investors compare bonds?

Central Bankers and Interest Rates (25 min.)

Knowledge Check 1

Which of the following is the strongest driver of inflation?

Knowledge Check 2

This chart shows the output gap in the US from 1949 to 1973. What is the output gap in 1973?

SECTION QUIZ

Here is a chart from the ILBE function displaying U.S. 10-year inflation expectations as of early 2017. At the point in time shown, where is the country’s 10-year inflation expectation in relation to the Central Bank’s inflation target?

Investors who fear rising inflation may buy Treasury Inflation Protected Securities (TIPS). How do TIPS shield lenders from inflation?

What is the Federal Reserve’s favorite inflation gauge?

Here is the output gap in the U.S. in early 1975. What was likely the Fed interest rate policy?

The Yield Curve and Why It Matters (15 min.)

Knowledge Check 1

Why does the yield curve naturally slope upwards?

Knowledge Check 2

Why did the corporate spread significantly widen during the 2008 market crash?

SECTION QUIZ

What impact will a tightening of the corporate spread most likely have on a company?

What are the three main transmission mechanisms by which the yield curve affects the economy?

What is the 10-year to 3-month term premium of the following yield curve?

The purchase of which of the following products is most affected by interest rates?

Movements in the Yield Curve (20 min.)

SECTION QUIZ

What is the primary driver of the left-hand end of the yield curve?

Which yield curve is most likely linked to a booming economy?

The two yield curve in the chart are from September 10, 2001 and from October 10, 2001. What do you think the Federal Reserve did with interest rates in the month following the attacks of September 11, 2001?

Why does the yield curve tend to invert shortly before a recession?

EQUITIES

Introducing the Stock Market (25 min.)

Knowledge Check 1

Why do companies do IPOs?

SECTION QUIZ

Why do company manager-owners smile when they ring the stock exchange bell at their IPO?

The Dow Jones Industrial Average Index has an unusual weighting methodology. Unlike the S & P 500, it is weighted by share price. Here are 22 of the 30 members of the Dow Jones as of mid-June 2015. If all the shares went up by 5%, which share on the screen shown would have the biggest contribution to an upward movement in the index?

In 1999, James Glassman and Kevin Hassett published a book called “Dow 36,000.” At the time, the Dow Jones Industrial Average Index was just under 12,000. Which of the following is a potential substitute for the book title?

Here is a chart of the index value for the S&P 500 and the United Kingdom’s main equity index, the FTSE 100, from the end of 2008 to early 2015. The labels have been removed. One index has clearly outperformed the other. Over this period, there was a technology boom and an oil crash. Here are pie charts showing the early 2015 index compositions by industry for both the S&P 500 and the FTSE 100. Which index outperformed?

The Nature of Equities (35 min.)

Knowledge Check 1

What is the prime reason that Jenny’s discretionary income is more volatile than her salary?

Knowledge Check 2

A wedding planning company has a high fixed-cost base and a lot of debt. Who would you rather be?

Knowledge Check 3

The S&P 500 stood at 1848 at the end of 2013. According to the chart, what would the approximate return be on the S&P 500 from the trough of March of 2009 to the end of 2013, ignoring dividends?

Knowledge Check 4

Assume that an investor in the S&P 500 reinvests his dividends. According to the chart, what approximate return would this investor have reaped from the early 2009 through to the endpoint of the chart?

SECTION QUIZ

Why are equities volatile?

Which of the following statements is true?

In the example highlighting the differences between bond holders and shareholders, we equated surgeon Jenny to a shareholder. Which row of the budget planning table shows the amount to which she as a shareholder would be entitled?

You but the stock of four consumer goods companies at the end of 2004 and hold them until August 2010. Here are the TRA (Total Return) charts from Bloomberg for all four stocks. The “Buy Price” in the top left-hand corner is the price you paid for each stock. The price of the stock in August 2010 is noted in the chart’s legend. The legend also states the Dividend Adjusted Value in 2010, which is the value of the stock including reinvested dividends over the holding period. For which stock did the bulk of the total return come from dividends?

Equity Research (45 min.)

Knowledge Check 1

What does the release of earning announcements have in common with the release of economic indicators?

Knowledge Check 2

The number at the bottom right of each supplier’s box shows the portion of Boeing’s costs in the last year that went to that supplier. The number at the bottom right of each customer’s box shows the portion of the customer’s capital expenditure (money spent in high value purchases) in the last year that went to Boeing. For which company shown was Boeing the primary plan supplier in the last year?

Knowledge Check 3

Which company is most exposed to the ups and downs of the aircraft engine industry?

Knowledge Check 4

Engines are the most expensive, heavy component on an aircraft and are designed with detailed specifications. Which of the following would likely be the best theme for a Rolls-Royce analyst research note to help a portfolio manager decide between investing in Rolls-Royce or United Technologies?

Knowledge Check 5

You are building a financial model of a bifocal lens manufacturer. Which of the following is the best driver to use?

Knowledge Check 6

Here is a table from the Bloomberg Intelligence aluminum dashboard which shows the different end-uses of aluminum in China. Which of the following Bloomberg headlines would be of most interest to an aluminum trader in China?

SECTION QUIZ

When an analyst is looking at a company for the first time, which of the following four activities does he do first?

Here is a table from the Bloomberg Intelligence copper dashboard which shows the different end-users of the “red metal.” Which of the following Bloomberg headlines would likely be of most interest to a copper trader?

Here is a breakdown of post-it note inventor 3M’s revenue by industry. Which of the following industry drivers should be of most interest to a prospective investor of 3M?

Company X was expected to have earnings per share of $0.52 for the upcoming quarter. On the day of the results, the company reported earnings per share of $0.83. What happened to the share price when the stock market opened?

Absolute Valuation (50 min.)

Knowledge Check 1

Which company is worth more, Coca-Cola or Pepsi?

Knowledge Check 2

Widget Co has a market capitalization of $ 100M. It does a 10-for-1 stock split. It then does a 1-for-16 reverse stock split. Finally, it does a 35-for-1 stock split. Nothing else changes. What’s the new market cap?

Knowledge Check 3

What input do both absolute valuation and relative valuation typically require?

Knowledge Check 4

Which if the following is most likely to be the most challenging part of this step of the absolute valuation process?

Knowledge Check 5

What is a reason one discounts future cash flow as part of the absolute valuation process?

Knowledge Check 6

What role does beta play in absolute valuation?

Knowledge Check 7

Here is the capital structure of Microsoft. What part of the $42.03 share price (to the nearest dollar) is represented by cash?

Knowledge Check 8

How is enterprise vale calculated?

SECTION QUIZ

Which of the following stocks is most sensitive to the movement of the overall stock market?

Which of the following assigns the same relative weightings to short-term and long-term outcomes as the absolute variation process?

Here is the WACC function for U.S. drug company Pfizer. The WACC calculation has been hidden. What is the WACC?

A rise in which of the following inputs will increase an absolute variation?

Relative Valuation (45 min.)

Knowledge Check 1

How do earnings yields differ from bond yields?

Knowledge Check 2

At its peak at the end of 1999, Microsoft had a market cap of $600B. PC sales were booming and most PCs ran on Microsoft software. Revenue was growing 30% per year. The P/E ratio peaked at nearly 80.0X in 1999. Looking at this chart, what happened in the subsequent 15 years?

Knowledge Check 3

What is one possible weakness of this peer approach to valuation?

Knowledge Check 4

What may be a problem of comparing the P/E of a stock to the P/E of the overall market?

SECTION QUIZ

Here is a chart of the NASDAQ Composite, the world’s main technology index. It peaked in the dotcom bubble on March 10, 2000. The P/E ratio later peaked above 500. In hindsight, this is widely agreed to have been a bubble. In March 2015, the index value for the first time since then surpassed the peak. Why might some investors at that point have argued “this time it’s different”?

The World Equity Index function shown contains two valuation metrics for the S&P 500. The Nike description contains the same two valuation metrics. How does Nike’s valuation compare to that of the S&P 500?

If the earnings per share of a company is $1 and the earnings yield is 2%, what is the price per share?

This chart shows a scatterplot with the x-axis being the estimated sales growth and the y-axis being the estimated P/E multiple. Given this data alone, which of the following companies may warrant further analysis by a portfolio manager looking to buy an insurance company for her portfolio?

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vanessawestwcrtr5 · 5 years

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Bitcoin as the Ultimate Haven from Hyperinflation: A Country By Country Analysis Of Worldwide Fiat Currency Inflation – Crypto.IQ

Bitcoin was created during the Great Recession that started in 2008, when the governments of the world printed trillions of dollars to bail out banks and corporations. Satoshi Nakamoto intended Bitcoin to be a decentralized form of money that could not be printed by governments at will. In the the Genesis Block Satoshi included the message “The Times 03/Jan/2009 Chancellor on brink of the second bailout for banks.”

Fiat currencies continue to be the dominant form of global currency, but it seems logical that, if fiat currencies were to hyperinflate and collapse, Bitcoin would become the dominant global currency.

This is because Bitcoin can be sent instantly anywhere in the world and is cryptographically secure. It is easy enough to integrate Bitcoin into any e-commerce store or physical store, and the customers of the future will be able to send Bitcoin from their smartphones via QR codes. Therefore, if fiat currency becomes obsolete, Bitcoin could seamlessly take its place and keep the global economy running.

There has been plenty of hype that fiat currencies are collapsing, but this article will explore the current state of major fiat currencies in the world to ascertain the true situation. This is important information since the rate of fiat currency inflation by country is an important factor that will determine Bitcoin adoption rates and ultimately Bitcoin’s price.

United States’ Inflation Rate

The United States is perhaps the best place to start an analysis of global fiat inflation, since the USD is the world’s dominant fiat currency and perhaps the most stable long term. That being said, there is 2-3 percent annual inflation in the United States.

If we split the difference at a 2.5 percent annual inflation rate, it means $100,000 stored in a bank will lose a whopping $22,400 of value over the course of 10 years, corresponding to 22.4 percent inflation per 10 years. Therefore, even in the United States, saving money long term seems impractical, and this essentially forces people to risk their savings by investing in the hopes that the money earned from investing will outpace inflation.

It appears inflation will only worsen in the United States since the national debt is approaching $22 trillion, with a budget deficit of $1 trillion per year and growing. This situation will likely lead to increased money printing, which would increase the inflation rate. Therefore, saving money in USD long term does not make financial sense. Bitcoin is an alternative way to store money long term, although Bitcoin has yet to mature and can be extremely volatile from year to year.

Euro (EUR) Inflation Rate Is 37.5 percent Relative To USD During The Last 10 Years

One of the primary global currencies besides the USD is the Euro (EUR). For the rest of this global analysis, fiat currencies will be compared to the USD exchange rate to determine inflation, but it must be kept in mind that the USD itself is inflating at the rate of 2 to 3 percent per year.

When the EUR launched in 1999, the exchange rate was one USD per 0.85 EUR. By 2002 the EUR weakened to 1.16 EUR per USD. The EUR then entered a period of vigorous strengthening, and the exchange rate fell to 0.64 EUR per USD by 2008. The Great Recession caused the EUR to begin weakening versus the USD long term, and currently each USD is worth 0.88 EUR. This represents 37.5 percent inflation relative to the USD in roughly 10 years.

Back to the storing money in a bank analogy, $100,000 of EUR stored over the past 10 years would have lost the EUR inflation rate + the USD inflation rate. With this sort of inflation rate it seems dangerous to store money in EUR long term.

It gets worse. The EUR is one of the top global fiat currencies, and there are many currencies doing worse than the EUR.

United Kingdom’s Pound Has 65 Percent Inflation Relative to USD in 11 Years

The United Kingdom (UK) is one of nine European Union (EU) countries that does not use the EUR, and eventually, the UK will leave the EU via the Brexit. However, the native Great Britain Pound (GBP) has done far worse than the Euro, with the exchange rate going from 0.48 GBP per USD in 2007 to 0.79 GBP per USD currently. This is 65 percent inflation relative to the USD during the past 11 years.

Canada’s Inflation Rate Is 45.2 Percent Relative to USD During the Last 7 Years

The United States’ neighbor to the north is similar to the United States in many respects. It is a fully developed and industrialized first world country. However the native fiat currency, the Canadian Dollar (CAD), has been experiencing severe inflation since the Great Recession. In 2011 1 USD was worth 0.95 CAD, and now the exchange rate is 1.36 CAD per USD. This represents 43.2 percent inflation relative to the USD since 2011, and of course, the USD has an underlying inflation rate as well of 16.2 percent during the last 7 years.

Even in the first world country of Canada, it is becoming impossible to save cash for retirement or even for short-term goals like buying a house, forcing people to invest in the risky stock market.

Mexico’s Inflation Rate Is 97.6 Percent Relative to the USD During Past 10 Years

Since the 2008 financial crisis, the exchange rate of the Mexican Peso (MXN) has gone from 10.12 MXN per USD to 20 MXN per USD. This represents 97.6 percent inflation relative to the USD, and USD inflation means the true Mexican inflation rate is well over 100 percent per 10 years. This sort of inflation rate ensures that people have to work their entire lives and can never retire, and overall, this sort of inflation can cause the entire economy of Mexico to struggle. Bitcoin seems like an obvious alternative to holding MXN long term.

It is quite shocking that a country bordering the United States has such high inflation, yet the mainstream media never mentions it.

Russia Has 194 Percent Inflation Relative to USD Since the 2008 Great Recession

Russia is a global superpower, with a gross domestic product (GDP) of $1.58 trillion versus the United States’ $19.39 trillion GDP. Despite being a superpower, the native currency of Russia, the Russian Ruble (RUB), has gone from 23.48 RUB per USD in 2008 to 69.08 RUB per USD currently. This yields a 194 percent 10 year inflation rate relative to the USD. Clearly, the Great Recession that started in 2008 is a common point when fiat inflation accelerated in many countries around the world.

Japan’s Inflation Rate Is 46 Percent Relative to USD Over the Past 7 Years

Japan is a first-world country and has one of the most important stock markets in the world. The GDP of Japan is ranked number three in the world at nearly $5 trillion. However, its inflation rate is far higher than the United States, at least since 2011. In 2011, the exchange rate was 76 JPY per USD, but it has now risen to 111 JPY per USD, a 46 percent inflation rate relative to the USD over the past 7 years. This is actually almost exactly the same as Canada’s inflation rate.

China’s Inflation Is Only 14.4 Percent Relative to USD Since 2013, but China Tightly Controls the CNY

China is the second ranking economy in the world with a $12 trillion GDP. Its position as the number one trading partner of the United States gives it power to manipulate the exchange rate of its native currency the Chinese Yuan (CNY). The CNY actually strengthened greatly versus the USD until 2013, when China relaxed its control over the CNY exchange rate to make it more competitive in the global import and export markets. Chinese control over the CNY and therefore, control over the profitability of Chinese imports, is a primary reason for the “trade war” between China and the United States.

Since allowing the CNY to lose value relative to the USD, the exchange rate has gone from 6.04 CNY per USD in 2013 to 6.91 CNY per USD currently, a 14.4 percent inflation relative to the USD in 5 years. China is an outlier and has one of the lowest inflation rates relative to the USD.

Switzerland Has One Of The Lowest Inflation Rates At Less Than 5 percent Relative To The USD In 7 Years

Switzerland has remained independent of the European Union and does not use the EUR. Instead, it uses the Swiss Franc (CHF). The CHF actually strengthened greatly relative to the USD during the Great Recession, but the trend reversed in 2011. There was a rapid devaluation of the CHF relative to the USD from 0.76 CHF per USD to 0.94 CHF per USD during 2011. In The 7 years since then, the CHF has roughly five percent inflation relative to the USD and sits at 0.99 CHF per USD currently.

That being said, it cannot be forgotten that the USD itself is experiencing 2.5 percent inflation per year, so even countries that have low inflation rates relative to the USD have a significant inflation rate overall.

India Has Seen 79 Percent Inflation Relative to USD Since the Great Recession Began

India has the sixth highest GDP in the world at $2.6 trillion, and the second highest population at 1.34 billion. Since the Great Recession began, the Indian Rupee (INR) has gone from 39.18 per USD to 70.14 INR per USD, a 79 percent inflation relative to the USD in 11 years. Unfortunately, India is slowly making Bitcoin more illegal and could fully outlaw it, so citizens may have to break the law in the future in the event that inflation accelerates and Bitcoin becomes a preferred way to store money.

Indonesia Has 76 Percent Inflation Relative to the USD in Seven Years

Indonesia has a population of 265 million, not far behind the United States, but its GDP is 20 times less than the United States at $1 trillion. Part of the reason Indonesia’s economy is weaker may be that the native fiat currency, the Indonesian Rupiah (IDR) has gone from 8,250 per USD in 2011 to 14,550 IDR per USD currently. This is 76 percent inflation relative to the USD in 7 years, around the same rate as India. However, Indonesia has banned Bitcoin as of 2018, which would make it difficult for citizens to use Bitcoin in the event inflation spirals out of control.

Brazil Has 152 percent Inflation Relative To USD In Past Seven Years, Despite Being the Strongest Economy In South America

Brazil has the most powerful economy in South America with a $2 trillion GDP. However, South America as a whole is experiencing out of control hyperinflation, and Brazil seems to be feeling the effects. The Brazilian Real (BRL) has gone from 1.55 per USD in 2011 to 3.91 BRL per USD currently. This is 152 percent inflation relative to the USD in 7 years. There does not appear to be any inflation safe haven in South America, and this could make South America a Bitcoin adoption hotspot.

Venezuela Has Ridiculous Inflation Around One million percent Per Year; Bolivar Collapsing

The end game of fiat currency inflation, if left unchecked, is currency collapse. A classic example of currency collapse is the situation in Venezuela, where the Cafe Con Leche Index suggests 400,000 percent inflation per year, although if a shorter term average is used it is 1 million percent per year or more. It would be shocking if the native fiat currency of Venezuela, the Sovereign Bolivar (VES), is still usable one year from now. Bitcoin is legal in Venezuela, and there is plenty of news which indicates people are abandoning the VES for Bitcoin.

South Korea Has Zero Inflation Relative to the USD

South Korea is considered a powerful economy relative to most of the world, with a GDP of $1.5 trillion despite the country’s small size. The South Korean Won (SKW) has essentially zero inflation relative to the USD long term aside from an exchange rate shock during the 2008 Great Recession. That being said, inflation is still a reality in South Korea since the USD has average inflation of 2.5 percent per year.

Australia Has 53 Percent Inflation Relative to the USD in Seven Years

Australia essentially has a continent to itself, but it is not isolated from the global fiat inflation crisis. The AUD actually strengthened massively versus the USD from 2001 to 2011. However, the trend reversed, and the exchange rate has gone from 0.93 AUD per USD in 2011 to 1.42 AUD per USD currently. This is 53 percent inflation relative to the USD in seven years.

Israel Has Zero Inflation Relative To USD Long Term

Israel is in the Middle East but does not have strong connections to the economy of the rest of the Middle East and, apparently, a different monetary policy than most of the rest of the world. Israel is only comparable to the United States, South Korea, and perhaps Switzerland when it comes to fiat currency since the Israeli New Shekel (ILS) has practically zero inflation relative to the USD long term although there are shorter term oscillations. Like the other countries listed with zero USD relative inflation, inflation still exists because the USD itself is inflating.

In total, there are 180 fiat currencies in the world, and here, we’re covering just 16 of them. We could keep going, but the trend is already clear. Even in major countries with powerful economies, inflation has become a serious issue, with some major countries experiencing 50-200 percent inflation relative to the USD over the past decade, and those numbers don’t even take in the 2.5 percent per year USD inflation underlying them.

It is possible that worldwide fiat inflation will accelerate due to the growing global debt crisis. That’s especially true if an economic recession occurs since that would force a rapid increase in money printing.

So we’re in a global situation that needs to be actively monitored. Even if the status quo is maintained long term, most of the world’s population cannot realistically save money for the future because it’s going to lose value over time. This is a major shift from our parents’ generation when saving money was the smart thing to do.

The good news is Bitcoin is waiting on the sidelines. It’s ready to become the global currency if fiat currency collapses worldwide. Even if fiat does not totally collapse, perhaps once Bitcoin matures and becomes more stable, it will be a good option for saving money long term since its value is independent of fiat inflation.

Original Source http://bit.ly/2EOSnso

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adrianjenkins952wblr · 5 years