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Analysts' Insights

Analysts' Insights

Secular Stagnation Strikes Back: Your Financial Future Hangs in the Balance!

👇 1) The tech boom of the 2010s was driven by secular stagnation, referring to economies suffering from structurally low private demand, requiring very low-interest rates to sustain demand and achieve potential output.

👇 2) One year ago, US inflation printed 9%. Today it has crashed to just 4% and will likely fall even further to 2%. That’s when we talk again about secular stagnation, which will require Fed Funds (interest) rates of just 2% - instead of the 5.25% currently. There are 300 basis points of cuts coming.

👇 3) Some have argued that inflation would be permanently high (sticky) and interest rates would also need to be high, restraining the economy. Nothing is further from the facts.

👇 4) Last month, former Fed Chair Ben Bernanke and Oliver Blanchard released an academic paper arguing that the post-COVID inflation spike was initially driven by a shift in consumer spending due to stimulus from Congress and the Fed. This caused supply chain logjams as China locked down the economy. Both factors are not relevant anymore.

👇 5) This will open the door to lower inflation again and the tech boom of the 2010s, driven by cheap funding, will likely restart again.

👇 6) First, this will cause a big rally in regional bank stocks as their bond portfolios have suffered as fixed-income products declined when the Fed hiked interest rates.

👇 7) Second, new tech companies will rally as investors become more confident that cheaper funding is available for those long-duration assets. An index of SPACs (backdoor IPO listings) has declined -50% from the 2021 highs but is now up +10% during the last 1 month.

👇 8) Third, it might take a few weeks as investors want more regulatory clarity, but crypto companies can now rally again. Especially some of the listed crypto firms could double or triple on a 2-3 year view.

👇 9) Previously, we have pointed out how Hedge Funds appear to be short (or at least hedged) the US stock market, as most expected a US recession to occur in 2023. This seems now unlikely.

👇 10) One thing is evident from the latest US CPI report; inflation is falling fast, and US interest rates will likely be materially lower in the years ahead. Your financial future is in your hands. Be bullish and embrace the new bull market. New highs for US stocks are awaiting.

The chart below shows our inflation model (white) vs. actual CPI YoY (blue)

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