Hedges against Deflation....

7th May '20 by Carey Blunt

9 comments 909 reads

Hi,

Has anyone been thinking seriously about hedging against Deflation? It seems to me that we are at a high level of risk of entering a period of extended deflation with very few monetary policy tools left in the box to do anything about it.

Does anyone have any recommendations for deflation hedges? AAA Corporate Bond ETFs? Simple ways to buy Government debt? Defensive Consumer goods companies that look good value which you would predict will do well?

I'm very interested if anyone has done any thinking on this and what suggestions people have.

cheers

Carey

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About the Author

Carey Blunt

Premium Member

Just an IT professional trying to make a decent return on whatever money I can get together.

9 comments

bryans1311

7th May '20

Personally, I’ve gone against every instinct I have this week and purchased some b**coin (I struggle to say that out loud!). People are chasing yield, returns, the next hot thing etc. and BTC has stubbornly survived since the last bubble deflated. There must be something to it, that I can’t see. And with most other “currencies” being printed like confetti, I think it’s a useful hedge to both an inflationary and deflationary environment as people seek a safe haven.

I do understand this is probably not the reply you are hoping for!

Carey Blunt

9th May '20

Thanks, I’m interested in all approaches so I do appreciate it. I do have some crypto, small amounts of Raven coin, Zcoin and some of that I converted to bitcoin. Lots of interesting things happening in the crypto space over the past few weeks and other events like the next “halvening” due so it’s interesting for lots of reasons.
I am still interesting in other deflation fighting ideas if anyone else has any?

Cheers

Irishmanabroad

10th May '20

Hi,

Are there any Bitcoin etfs or what is an easy way to purchase bitcoin?

Thanks

Simon Rowan

10th May '20

Gold stocks are quite interesting at the moment, as a hedge. As with most things opinions seem to be down the middle on direction. Quite gold price sensitive which slipped recently. A few of them in the top ranking shares. As Trump is prepared to do 'whatever it takes' I'm definitely in the camp that gold will go higher. The market has been a little more stable in recent weeks. It can all change pretty fast though. I've tried to focus on stock that have continued to trade and are doing well either because of or in spite of the virus. Food production, cyber security and tech/games rather than recovery stock.

Carey Blunt

10th May '20

I don’t think there are any Bitcoin or Crypto ETFs yet but they aren’t that difficult to buy if you set up an account on an exchange like Binance.com . Do some research though on if you want to store them offline in a “cold” wallet.

Carey Blunt

10th May '20

Gold is a good hedge for inflation but will not provide any help with deflation. It feels like a Goldilocks situation to me. If the government money stimulus makes the economy too hot or too cold then we may need some smart hedges against inflation or deflation. If they manage to get it “just right” then being fully in stocks will provide a good result.

Consumer staples will be good in a deflationary environment and I’m always invested in Tech so absolutely agrees with you there.

bryans1311

10th May '20

I trade via IG spreads (I fully cover balance, so no leverage used). Just be aware, bitcoin does trade 24/7, so if you’re a price watcher, you’ll never switch off!

Ps. My previous comment was typically prescient... as it’s down 12% since!!

Pps. I’ll not be commenting on this any further, as don’t want to hijack the thread.

Metatron

11th May '20

There is a Bitcoin Fund Grayscale Bitcoin Trust but it is on an obscure USA exchange OTB that is difficult to trade

HHR

11th May '20

Hello Carey, Chris Bloomstran was recently interviewed on Patrick O'Shaughnessy's podcast and he expressed the same view as you on deflation. I found his thoughts very helpful and I would recommend giving it a listen if you haven't already (the deflation bit starts at 41 minutes but the whole programme is interesting).

In terms of sectors/companies he just emphasised the fairly obvious cases. He said as deflation and recession take effect, consumption becomes a greater percentage of overall GDP. As such consumer goods companies and food and drink sellers will be resilient, and if bought at the right prices profitable, investments. He mentioned Pepsico and Dollar General although he thinks Dollar General is too highly valued at the moment.

He also said that with Fed action so massive in scale and capital so easy to come by, he thinks many 'junk' status companies will survive which otherwise could (and should) have gone to the wall. He said that with skill in picking the ones that have been oversold then good investment returns could be found.

On a slightly different tack he thinks the unwinding of globalisation will continue after Covid. As such he expects manufacturing to repatriate from China to the US. In retaliation he wondered if China might annex US assets e.g. Starbucks cafe's.

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Hedges against Deflation....

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Carey Blunt

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