Investment themes to consider in 2021 (1/5)
The stars seem to be aligned for financial markets. Since March 2020 low point on the stock markets, risk-taking has been more than adequately remunerated. In the current reflationary environment initiated by central banks using their prerogatives by actively printing money without limits and governments aligned in good order to multiply stimulus plans, only an exogenous event, unpredictable by nature, would constitute a rational reason to witness a sharp correction.
In a context where investment alternatives are shrinking, the mistake would probably be to withdraw completely from the financial markets. Not to be invested while asset prices are soaring is a reckless move that can be costly in relative terms (cf. Quarterly Letter of August 21, 2020).
In order to approach 2021 with serenity, we would like to share with you some investment themes to consider in the months and years to come.
Alternatives to fiat currencies
In economic theory, devaluing its own currency in order to revive its domestic economy helps boosting exports. This accommodating economic strategy, known as competitive devaluation, should lead to a return to growth, inflation and productivity. However, this tactic can only work if the State acts in accordance with the common interest and, indirectly, with the consent of the other economic blocs.
Today, we are witnessing a similar dynamic in developed countries’ currency management. To summarize, the revival of the domestic economy becomes the priority. The race for competitive devaluation is launched by applying the same medicines and principles everywhere. This protectionist strategy of managing the currency external value , which only take into consideration selfish economic interests, handicaps the collateral value of the currency. In the absence of global consultation/coordination, this becomes a challenge for fiat money, since the protagonists’ currency devaluation motivations are identical.
The opposing forces cancel each other out and thus harms the collateral value of these currencies. Consequently, the level of confidence in fiduciary currencies is eroding. In order to maintain its purchasing power constant, investors will have to consider potential alternatives outside the fiduciary system and favor, almost by default, so-called tangible assets. such phenomenon will therefore most likely benefit digital assets and real assets including precious metals. This leads us to reinforce our message to consider alternatives to fiat currencies.