Conflicting Inflationary Winds Blowing In The Fintech Sails: Why Inflation Drivers Matter To Portfolio Strategies (23/10/2022)
MASSIMO GUIDOLIN
MONIA MAGNANI Seeking Alpha
Summary
The distinction between demand- and supply-driven inflation carries a key role in forecasting how fintech firm valuations will be impacted by the recent surge in US inflation.
While demand-driven inflation represents good news, supply-driven inflation is not and this asymmetric effect holds irrespective of whether monetary policy tightening reacts differently to different inflation drivers.
As the pent-up demand driver of inflation lingering after Covid-19 fades away and the supply-factors become dominant, fintech valuations are likely to decline.
Policymakers should recognize the costs that fintech may save to consumers in the face of rising inflation and this may be a game changer that should be on investors’ "radarscreen".
To obtain reliable forecasts of the price of gold, we propose to move the focus from a traditional "real rate view" to an overall monetary-policy-stance perspective.
Recent contributions in applied monetary policy analysis have shown the usefulness of shadow, or implicit, rate indicators of the stance of monetary policy.
The shadow short rate is equal to the policy rate in non-lower-bound/conventional monetary-policy environments, but it can freely evolve to negative values in lower-bound/unconventional environments.
When we purge the data of the effects of the strong U.S. dollar, 2014-2017 turns out to have been an exceptional period in which gold appreciated while real interest rates climbed and monetary policy went through a tightening cycle.
Gold prices can be expected to resume on an even stronger appreciation path because since early 2019, shadow short-term rate indicators have signaled a significant monetary policy easing in the U.S. and worldwide.