The Coming Economic Storm: Are We Stagflating or Just Getting Tariffed? 🌩️

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What to know:

  • The grand titans of finance, the S&P 500 and our dear friend Bitcoin, have taken a tumble this year, while that “stagflation basket” by Goldman Sachs has risen like bread dough on a warm day—nearly 20% if you’re counting!
  • Bitcoin’s allure as digital gold remains, or at least that’s what Noelle Acheson opines with a glimmer of hope in her eye.
  • Our good buddy Markus Thielen suspects we might just be seeing the effects of tariffs percolating through, and not a full-blown stagflation catastrophe. Phew!

It seems no one dared to lament the “s-word” (stagflation, that is) at the World Economic Forum in Davos early this year! Nah, they’d rather not jaw about tariffs and trade wars—even as they loom like a bad smell at a picnic.

Nevertheless, investors are indeed smelling trouble, which explains why stagflation-linked strategies are giving the ol’ buy-and-hold Bitcoins and S&P 500 a run for their money.

Last week, Goldman Sachs unveiled its “stagflation basket”—the one that bets on commodities and defensive plays like healthcare while simultaneously shorting consumer discretionary, semiconductors, and those tech stocks that can’t turn a profit. As for this basket, it’s up about 20% this year. Sweet mother of economics!

This year, our beloved S&P 500 has dropped lower than a snake’s belly—down 4%. And Bitcoin, that majestic digital creature, is off 10%. Can’t say it’s been a good season for them, as per the sages at TradingView and CoinDesk.

The IMF, in their infinite wisdom, describes stagflation as the miserable time when high inflation decides to cozy up with economic stagnation and high unemployment—yup, the perfect recipe for a disaster dinner party.

“Stock and bond prices seem to be adjusting to the new party crashing in the form of stagflation,” said Noelle Acheson, the author of a newsletter that’s all the rage these days—Crypto Is Macro Now. Seems healthcare’s waving its deregulation flag while the funding cuts are doing a little jig on the sidelines.

The whispers of stagflation have been echoing since 2022, but it’s only this year that the markets have started paying heed, most thanks to Trump’s tariffs and trade tensions escalating like a bad soap opera.

Looking ahead, inflation metrics are climbing like a cat on a hot tin roof, with fears of pricier consumption reigning supreme. And in a twist of fate, a section of the Treasury yield curve has flipped into inversion—oh dear, more recession whispers. Real-time GDP trackers, such as the Atlanta Fed’s, are singing a lovely tune about a sharp contraction in economic activity.

BTC failed as digital gold?

If stagflation were to become a reality, it would be prime time for Bitcoin to strut its stuff like a peacock—after all, gold has gained a respectable 13% this year, in case you were keeping score.

But lo and behold, the bullish chorus in the cryptocurrency space hasn’t quite manifested. In fact, our dear BTC has become more closely correlated to U.S. stocks—who woulda thought?

This doesn’t mean, according to Noelle Acheson, that BTC’s lost its mojo as a safe haven. “In the short term, BTC’s a risk asset, but long-term it’s still that safe harbor we all dream of,” she remarked, likely sipping on something strong while pondering the future.

She continues, “Tailwinds remain intact, and when the market gets used to the new economic tune, those inflows might just start to flood back into crypto pretty soon!”

Stagflation mispricing

Markus Thielen, the founder of 10x Research, has a differing view; he asserts the market’s misreading this situation as stagflation. “Seems we’re just front-loading those tariff effects—temporary commodity demand who will fade faster than a magician’s rabbit,” he told CoinDesk.

And as fate would have it, he’s got a bit of hope too; a friendly dovish tone from the Fed could spark a rejuvenation of bullish spirits in risk assets—even Bitcoin might come back to play. Last week, Trump hit the brakes on doubling U.S. tariffs on Canadian metals—perhaps the eagle’s not quite ready for that hardcore a diet.

“Trump’s polite suggestions of softening trade policies, coupled with a potentially dovish Fed, might just stir a little growth fairy dust among assets,” Thielen noted, channeling the spirit of optimism that bubbles beneath even the worst of economic eras. After all, betting on prolonged stagflation has not won many hearts over the past 40 years—if history are any guide to the present, let’s hope for a new set of winners!

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2025-03-17 16:28