The Beginning of a Flight From Money?

The printing press never stops: in OECD countries, the balance sheet of central banks has risen from the equivalent of 10% of GDP in 2008 to more than 30% today, a threefold increase in ten years. The Federal Reserve stopped shrinking its balance sheet in October 2019 and there is starting to be talk of resuming quantitative easing, just like the ECB, whereas the Bank of Japan never stopped its own.

In the past, excess money creation led to inflation, but this is manifestly no longer the case. But this does not mean that there will be no negative consequences, and this could take the form of a "flight from money": investors and savers get rid of their cash to acquire "real" assets, i.e. assets that are tangible and have intrinsic value, allowing them to maintain value in a context of mistrust of money and the risk of bank failure.

According to the Natixis Bank's research department, "There are now a few signs in OECD countries that could reveal an incipient flight from money: rising prices in real estate, unlisted equities, gold, bitcoin". Thus, "The limit is no longer inflation, it is confidence in money."

Investor savers are thus shifting to real estate (house prices in OECD countries start to rise again from 2013), listed equities (stock market indexes have been rising continuously since 2008), unlisted equities (valuation multiples of private equity transactions are rising). The study also points to the "safe haven" assets of gold and other precious metals, and cryptocurrencies, although the high volatility of bitcoin certainly does not make it a very reassuring asset.

For our part, we will add the raw materials (for nations and institutional investors) that could also crystallize this mistrust, and also the art market, and vintage cars, whose prices are steadily rising. However, all these assets should not be put on the same level since real estate and equities are already in a bullish context, their margin of growth being limited, which is not the case for physical gold, or to a much lesser degree. It is therefore clear where the investor should go.

For Natixis, the situation is serious: "The fact that the prices of real estate, listed and unlisted equities, gold and bitcoin, for example, are now rising may be a sign that OECD countries are nearing the point where confidence in money is lost" As a result, it is no longer necessary to wait too long to turn to gold.

And let us also point out that inflation will be our right anyway, and that it will be the consequence of the flight from money, which will drive up the price of raw materials, and therefore consumer products (food, energy). An emergence of inflation which, in addition, will drive up interest rates and collapse the bond market. In this scenario, you really don't want to miss the boat.