Three major global roadblocks are causing HOT Inflation
Inflation: logistical roadblocks, the Covid tolerance policy in China, and War in Europe. The combo has been a killer to investors worldwide.
I believe the hyperinflation phenomena will change a very contrarian view, potentially sooner than you think. My arguments for slowing Inflation,
Two significant factors are causing inflation: supply-side Inflation and demand inflation. How supply-side inflation is slowing,
Global shipping rates from Asia are falling for the first time, Positive!
Trucking shipping rates are falling domestically, Positive!
New startup programs to ease transportation inflation are in progress, which is fabulous but will take time. (i.e., Walmart, DOT programs)
Releasing oil reserves at the pump will help! But only for three months (then we run out), slightly positive.
I used car prices dropping, positive!
On the demand side, the actions of the Federal Reserve, which are overly hawkish and raise interest rates aggressively, will reduce demand quickly!
This is a touchy statement for me as it is a direct causation of the pain of many inventors over the last four months. The Fed's catastrophic blunder of not addressing the inflation phenomena in 2021 has shown its political weakness in helping those in charge instead of acting independently.
This has been a common problem under Fed Chair Powell during Trump's term and Biden's.
Despite some people's distaste for our leadership, these are actions easing inflationary pressure - which brings me to how this directly affects you! First, retirees and investors entering retirement,
Bonds! A commonly used investment approach that is having a tough year is reacting to two things: 1) The Federal Reserve became a seller of Treasuries instead of a buyer for the first time in two years.
2) Inflation expectations rose aggressively after Russia invaded Ukraine and spooked the market.
The bond market could have handled one out of two of these issues, but the combo was a disaster! This leads me to the critical part.
The formula the Federal Reserve publishes to calculate future inflation in Treasury bonds is a floating index tied to macro inflation data. IE. Future payroll expectations, future oil prices, CPI expectations, and more.
If Macroeconomic data shows that inflation is cooling from lower demand driven by the Federal Reserve tightening rates - then at some point in our near future, bonds will be beautiful at these rates and start reacting to a slowing economy vs. inflation.
The big question is when, and unfortunately, the jury is still out, but based on the CPI data released today on April 12th and other leading indicators, inflation is cooling in some areas.
If my research is correct and bonds begin to show inflation cooling in the future, it opens the door to the following investment areas:
Bonds
Credit
Technology
Biotech
Housing
Consumer Discretionary: What areas are attractive now?
Per my last email, I have compiled a list of companies and strategies that fare well during high inflation and economic uncertainty. These companies are collected from Raymond James' research and cover specific investment areas insulated from global/external pressures. Past performance does not indicate future results, but it's a great place to start a conversation. Below are the sectors it would cover.
Utilities
Automotive Repair
Precious metals
Public Storage Reits
Consumer staples
Insurance (life, housing, brokerage)
Healthcare
If you want a specific list of investments, please don't hesitate to reach out. I am eager to discuss! Summary,
This quarter, there will be an inflection point in which bonds will be beautiful to investors.
This will help us make additional progress on income and preservation of capital techniques. Stay Tuned!
All my best, Chris