While Uncertainty Remains in the Markets, 4 Certainties Will Increasingly Drive Investors to Bitcoin.

It's all about taking the long view.

The war between Ukraine and Russia has been going on for over 40 days now. No one knows how the Ukrainian conflict will evolve in the coming days (even if five possible scenarios are emerging), what the impact of economic sanctions will be in the following months, and where inflation will end up at the end of the year.

However, 4 certainties are already apparent.

In the current uncertainty, 4 certainties appear clearly

The first certainty is that consumer purchasing power will suffer. More and more so. The current tensions on the prices of certain raw materials have nothing to do with the COVID-19 pandemic, but are linked to the Ukrainian conflict and are set to last. Judge for yourself:

• +30% increase in the price of oil since the beginning of 2022.

• +40% for wheat.

• +50% for the price of gas.

• ...

The efforts of the various governments to limit the damage are always welcome, but so derisory in the face of the shock suffered.

The second certainty is that corporate margins will also suffer. The bill is likely to be high, with the rise in the cost of inputs due to the pressure of energy prices in particular, and the rise in the cost of capital due to the rise in interest rates. Only one sector is likely to benefit: energy, of course. But the rest of the companies will have to make the effort, and if necessary cut back on hiring and investment.

Analysts are still forecasting 10% profits in 2022. Their forecasts seem like a dream. Only companies with pricing power in their favor can hope to achieve such forecasts.

The third certainty is that central banks will have to tighten their monetary policies. It is already good to anticipate an increasingly restrictive monetary policy from the Fed or the European Central Bank. But let's not exaggerate. We should rather talk about a less and less accommodating monetary policy. Indeed, let's not forget that key interest rates are at 0% and inflation is close to 7%. Before monetary policy becomes restrictive, it will take a long time and many central bank committees.

So you have some room to maneuver.

The fourth certainty is that fiscal policies will not be able to finance the next crisis so easily. Whatever it costs still doesn't cost much despite the interest rate pressures. But it costs a little more anyway, and it could cost a lot more if rates continue to rise. And we can no longer count on the European Central Bank to limit the damage done to the European Union.

Indeed, public debt will soon be persona non grata on the ECB's balance sheet. No more money creation to finance government policy. Inflation has reminded the ECB of its first duties.

Investors increasingly disenchanted with these 4 certainties

The investor does not need to be drawn. He understands very quickly that these 4 certainties do not promise anything good in the financial markets. All this, of course, provided that the Ukrainian conflict does not degenerate because then the outlook for investors would be even bleaker.

Let's start with the worst: the bond markets. Since the beginning of the year, they have lost nearly 5%. The rise in interest rates makes bonds initially bought at lower rates less and less attractive for the holder. Indeed, what is the point of holding a bond that pays 0% per year, when the one issued more recently offers 1%? You might as well sell now before rates rise even more. Because if rates started to rise because of inflation and central banks, we don't see why they would stop there.

Then there are the equity markets. They have lost almost 10% since the beginning of the year. But investors do not despair of a rebound to eventually close the year at nearly 0%. Possible, but less and less likely. For this to happen, corporate margins would have to resist rising costs, and market valuations would have to withstand the pressure on interest rates. That may be a lot. Of course, investors can always use the oldest argument in the world of finance: “rain or shine” and seize the opportunity of low prices. But then again, you have to be able to adopt a long-term strategy, which many investors seem unable to do.

What about credit or emerging assets? Not better, not diversifying. All of them have fairly strong links to each other, and even to the equity markets. In short, it looks good in a portfolio, we travel, but from there to improve the portfolio's risk/return ratio. Not so much.

Others are starting to talk about inflation-linked bonds. Inflation insurance is a good idea. But with negative real interest rates, it's already much less attractive. It's like only insuring half your assets. Of course, it's still better than nothing.

There would be commodities, the only asset class to perform from the beginning of the Covid crisis until the Ukrainian conflict. But the regulations are rather reticent to include this kind of assets in the investor's portfolio.

For the more courageous or the unwise, there are then the truly alternative assets. These assets offer you rather nice past performances but are inversely correlated to future performances. I am exaggerating, but not too much. It turns out afterward that we are closer to the tontine: alternative risk premiums, quantitative hedge funds, and other black boxes in the same category.

These certainties will lead more and more investors to Bitcoin

Finally, the last option that looks very promising for the future is Bitcoin. Bitcoin is still the talk of the town, and rightly so. For Bitcoin is much more than just another asset. Bitcoin is a monetary revolution that will create a better future world for many. Bitcoin fixes this for the developing world.

However, to take full advantage of it, the investor must accept that the volatility of its price is a feature, not a bug. This is still the same as taking a long-term view. The same as with the stock market today. Bitcoin has been held back at the beginning of 2022 by the war in Ukraine, but the rest of 2022 looks more than promising.

Remember also that the price of Bitcoin is up over 400% since the beginning of the COVID-19 crisis. Since the beginning of the Ukrainian crisis, its performance is about +30%. This makes it a very interesting option for 2022, but especially for the future.

Indeed, a new world monetary order seems to be emerging. A Bretton Woods III that will be backed by outside money. In this emerging system, Bitcoin will have a role to play as none's liability money just like gold and commodities.

To take advantage of this, we will have to take a long-term view, as always. So we come back to the same problem. Despite the current uncertainties and negative certainties, opportunities do exist, but to seize them, you will have to be able to make courageous decisions and stick to them.

The ball is in your court. As always, if I may say so.