This Week in Review | Cryptocurrency Volatility, Global Inflation, Real Estate

Transcript

Paige Tyson:

Hello, and welcome to This Week in Review. This weekly segment is designed to highlight a few important developments you may have missed this week, what they may mean for markets, and most importantly, the potential impact for investors. To stay up to date with our latest market insights, subscribe to our YouTube channel or visit fisherinvestments.com. Now, let's review what happened this week.

First up, Bitcoin volatility. The price of Bitcoin tumbled over 30 percent from early October through late November and has remained volatile since. This sharp decline has sparked questions from investors about the world's most popular cryptocurrency. Are there further drops ahead? What impact, if any, might Bitcoin weakness have on the stock market? Meanwhile, some headlines have hinted that Bitcoin's slide could signal trouble for equities or the broader economy, but historical data paint a different picture. Since 2013, Bitcoin has had nine drops of over 30 percent or more. However, only two of those drops coincided with global stocks bear markets—once in 2020 and again in 2022. In both instances, we would maintain that equity prices fell for reasons unrelated to Bitcoin, such as the pandemic in 2020. This makes sense given Bitcoin has historically had few ties with the traditional financial system. Bitcoin also doesn't produce cash flow or earnings, like most stocks or bonds. It isn't anchored to widespread retail or industrial uses, like gold or other commodities. It isn't even a widely used medium of exchange, like currencies. So, what appears to drive Bitcoin is the speculation that others want to buy it at a higher price later. Since demand seems mostly driven by pure sentiment, it can change rapidly and independently of other financial assets. Despite its extreme volatility, we don't believe this latest drop points to a broader market decline or economic warning sign. But that said, we continue to monitor risks related to Bitcoin, though none appear particularly concerning at this time.

Next, global inflation. On Tuesday, the eurozone released preliminary consumer inflation data for November, revealing a slight increase in the annualized inflation rate from 2.1 percent to 2.2 percent. And despite monthly fluctuations, inflation in the region has consistently stayed below 3 percent since October 2023. In comparison, inflation is slightly higher in the US and UK, while inflation is decelerating in Japan and China has experienced recent bouts of deflation. This discrepancy between inflation rates highlights the importance of a globally diversified investment approach, which helps reduce exposure to country-specific risks like domestic inflation. While concerns like tariffs may spark fear of rising inflation, it's important to remember that inflation ultimately stems from too much money chasing too few goods and services. And to that end, global money supply growth has been muted this year, suggesting global inflation should remain moderate.

Finally, a quick observation on a trending real estate story. Recent US headlines have piqued investor interest in the trend of turning underused commercial buildings into residential housing. It's the kind of story that makes for compelling news coverage, but not always a compelling investment strategy. Real estate conversions can be complex, costly and hard to exit. We believe broader market opportunities can offer more efficient or flexible ways to pursue long-term growth. As of 2024, real estate represents 13.8 percent of US gross domestic product, or GDP, and commercial real estate is only 9 percent of that. We don't view this trend as an imminent investment opportunity. To us, rather than the basis of a strong investment thesis, this trend is better viewed as another example of the power of capitalism. Strong profit incentives drive companies to adapt, evolve and find efficient solutions for society's problems. Real estate is no exception. Underused assets find a way to retain their economic vitality. Nowhere is this trend more evident than in New York City, where developers have transformed nearly 30 million square feet of office space into residential units over the past two decades— a process that's only accelerated in recent years. In part, this shift can be traced back to the economic shutdowns tied to the pandemic, which reduced the appeal of commercial real estate. We'll continue to monitor these developments for risks and opportunities, but the current wave of office to residential conversions is a reminder that markets evolve, and innovation often reshapes the landscape in ways we can't predict. This is also why our market forecasts are limited to a 12- to-18 month timeframe. Human innovation makes the future far less predictable than many realize. That's it for this week! Thanks for tuning in to This Week in Review. If you're looking for more insights, then don't miss our other series, 3 Things You Need to Know This Week, released every Monday. You can also visit fisherinvestments.com anytime for our latest thoughts on markets. Thanks again for joining us and don't forget to hit like and subscribe!