Inflation: The new guest at the European Saver's table
How bad is it?
In 2022, we are experiencing a new inflationist cycle, particularly powerful and sudden since the post-Covid recovery and accentuated by the Ukrainian crisis.
If France is relatively protected since the beginning of the cycle with an inflation around 6%, the rest of Europe and the western world are taking this wave full force (>10%).
France is resisting better than its neighbors for several reasons: an economy that is sometimes less financialized, a high level of social protection and, above all, a series of measures called "tariff shield" that is extremely powerful and general in its application. There is no doubt, however, that the effects observed outside France will cross borders in a few months.
This inflation is therefore significant (over 10%), permanent (see the ECB's statement in September 2022) and exponential (18% expected in the UK by the end of the year).
We already had inflation, didn't we?
Of course, but that was different.
We are even in an unprecedented situation: in the 1970s, our governments chose to index wages. Today, they refuse to do so in order not to feed the vicious inflation/wage cycle.
We govern with a cheque policy and not with a perennial revaluation of wages. We have therefore chosen to make citizens pay for the cost of inflation, not companies (even if there are discussions on this point in Europe), while betting on the hypothesis of a short period.
In addition to the non-indexation of wages, this inflationary period is also very different from previous periods because it takes place in a cyclical but also systemic context:
- Tensions on raw materials (depletion or scarcity of resources)
- New ecological constraints (linked to the acceleration of global warming and the growing mobilization of public opinion)
- Strategic relocation movements (post geopolitical tensions and uncertainties about supply chains)
The conclusion is clear for the European saver:
With a Livret A savings account at 2% when inflation is already at 10%, "prudent management" must be completely (and quickly!) rethought.
Indeed, "non-risky" savings solutions have paradoxically never been so risky since they cause households to lose a significant part of their purchasing power every day.
So what should we do?
What do previous crises tell us?
There are actually two strategies for the saver in this type of configuration: the Offensive or Defensive solution.
If we wish to see this period as a window of opportunity, it is possible to invest in financial stocks that are often massacred during these cycles, due to the need for liquidity and the uncertainty intrinsically linked to periods of instability.
During previous crises, this type of "bet" is profitable if:
- We have the means to invest (inflation has not dented the capital necessary for the saver's lifestyle)
- We have a long term vision (we must consider the cycle over several years)
- We are experts in stock market values
- We are convinced that the systemic forces mentioned above will not disrupt the market when the crisis ends
The defensive approach has always been the same: buy safe havens that traditionally resist better than other stocks in times of inflation. We are thinking of course of the "barbarian relic" (gold) but not only: watches, fine wines or real estate are also often used in this context.
Tour d'Horizon of new solutions in 2022
New assets have emerged since the last inflationary cycle.
One thinks in particular of "alternative" assets such as crypto-currencies. And in particular Bitcoin, initially considered by some analysts as the "digital Gold".
In reality, this alleged property of crypto-assets does not stand up to reality: their price is highly correlated to traditional financial markets. With increased volatility.
New solutions offer the greatest number of people access to alternative assets. The latter generally have the advantage of being uncorrelated with the financial markets, which, depending on the type of asset, could allow them to outperform inflation.
On the crypto-asset side, we can mention stablecoins based on the price of gold (Tether Gold, PAX Gold) or diamond (DiamondBack). There are also the famous NFTs, some of which are used to represent an underlying asset like wine.
Even more interesting are the services based on fractional ownership. These offer to invest in fractions of exceptional properties. Think crowdfunding of luxury items: wine, watches, art, cars, vacation homes, real estate, everything is now fractionalizable!
The advantages of these solutions make them very attractive: a low entry ticket and a high profitability. But what about the exit guarantees and the liquidity of the stake?
After all, these platforms do not guarantee that the underlying property will find a buyer at the end of the appreciation period and many projects have not yet reached their end. Thus, there is little experience with this type of investment. In addition, there are still few users on these platforms, which makes it difficult to have a liquid participation in the secondary market, when it exists.
Diversified stands out from these new players by offering a complete solution for investors who want to start in the high yield market. Thanks to an innovative technology (Web3), an exit at any time is possible thanks to a liquid secondary market. If you are a long-term investor, a buy-out of the property by the project owner is foreseen in 100% of the cases.