On Wednesday, the US reported that the consumer price index climbed to an annualized 9.1% for June. The new 40-year high shook the markets and the stock market “sunk”.
“Investors must learn to live with inflation,” advises billionaire Thomas Peterffy, the 77-year-old founder and chairman of online trading platform Interactive Brokers.
“I think inflationary pressures will continue for years, not months,” Peterffy told Forbes. “Inflation will not be a short-term problem.”
According to Peterffy, who is worth $18.1 billion, there are many reasons why inflation is here to stay: decades of deficits in the U.S. economy, ongoing supply chain disruptions as globalization “turns upside down,” lack of skilled workers and increased automation, ESG (Environment – Society – Corporate Governance) requirements that “increase the cost of production” and, paradoxically, rising interest rates: the ultimate tool to tame inflation.
“By raising interest rates, the Fed is raising the cost of servicing its government debt,” notes Peterffy. “It’s a vicious cycle that will eventually lead to a debt boom.”
Most traders expect the US Federal Reserve to raise interest rates by at least 75 basis points, or even one percentage point, at the July meeting. The increase in interest rates by 75 bp. in June it was the largest in the last 28 years. However, Peterffy doesn’t “see” a repeat of the ’80s, when Federal Reserve Chairman Paul Volcker raised interest rates to double digits, triggering a devastating recession but tamping inflation.
“I don’t believe the Fed will follow the ‘end justifies the means’ to rein in inflation because they fear it will destroy the economy and the debt spiral,” notes Peterffy. He believes that the Fed will drive interest rates to 4% and therefore inflation will hover around 6% for the next several years. “There will be stagflation for a period of time,” he predicts.
Peterffy predicts the US stock market will bottom out by the fall. He argues that the S&P 500 could fall as low as 3,000 in October: down 21% from its current levels of 3,800. It should be noted that Wall’s broader index has fallen more than 20% since its all-time high last November.
“Eventually, rising prices will trickle down to stocks,” Peterffy estimates, and “stocks will enter a long inflation-fueled bull market.” The broker adds: “This is a great time to “scan” the market and accumulate stocks.” Peterffy doesn’t recommend specific industries to invest in, instead recommending that traders look for companies that are “investing in their own competitiveness and growing their share of the sector in which they operate.”
In January, Peterffy had suggested that investors should consider 2%-3% of their assets in cryptocurrencies to hedge against the potential for fiat currencies to collapse.” Now, after the market plunge and the crisis liquidity that has rocked cryptocurrencies, Peterffy is not at all sure about that assessment.
“Bitcoin has a lot of potential to lose its value completely or be outlawed at some point,” Peterffy predicts. He believes the US government could move to block cryptocurrencies amid concerns about digital assets being used as a means “to finance illegal activities” and the inability of the US Treasury Department to “audit these payments and collect taxes”.
Not that Peterffy has written off digital assets for good. He still owns Bitcoin and has announced that he will buy more if the price of the most popular cryptocurrency slips to $12,000.
Looking ahead, there is one issue that worries Peterffy more than the markets. When asked about his future moves, he replied with a laugh: “I hope to survive.”
* Cryptocurrencies: The dominoes from the $2 trillion crash. – layoffs, wild sell-offs and bankruptcies
* Former Crypto Billionaire Insists: “Bitcoin Will Soar to $250,000 in Next 18 Months”
* Inflation may worsen sharply in summer and persist for “many years”
Source: Capital
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