What if Inflation is not Transitory and What Might it Mean for Your Portfolio?
This week on my virtual webinar I will host my friend David “Rosie” Rosenberg. I’ve been following Rosie for more than 2 decades. Very few economists dig as deep as he does to answer the why question. The question we will discuss and debate this week as if inflation is transitory or a bit stickier and what that might mean for your portfolio.
We know one of the Fed’s favourite market-based measure of inflation is the 5-year, 5-year inflation swap. This looks at the 5-year inflation outlook 5-years from today. What they call longer-term inflation expectations. You can see the history of this index has been anchored in the 2.5-3.25% range when oil prices were generally strong and rising (excluding the 2008-09 financial crisis). Last week, we saw the highest reading since 2014 when oil prices were beginning to fall rapidly (fracking revolution).
Rosie is arguing it’s transitory. Rosy says the current rise in oil price could act as a huge breaking factor for the global economy. The lag tends to be 3 quarters he notes. He says global growth could fall as much as 2% in 2022. So to the extent that the rise in inflation is supply side related and those labour and supply chain issues get fixed, inflation pressure will moderate. Rosie and I will look at many aspects of inflation and what it might mean for your portfolio.
Last week Fed Chairman Powell sounded the most hawkish he as in years.
“Elevated inflation can last well into 2022.”
“The are risks of longer, more persistent bottlenecks.”
We think Powell told us Friday the Fed will start to taper at their November 3rd meeting. On the weekend, Treasury Secretary Janet Yellen said inflation will likely remain elevated through the first half of 2022.
Just to prove that these guys DO NOT KNOW, here are some quotes from Yellen in recent months.
June: “Yellen says inflation should be lower than current levels by year-end” Reuters
Aug: “By the end of this year, monthly price changes will be running at a level consistent with the Fed’s target.” Bloomberg
Oct: “I don’t think we’re about to lose control” CNN
The debate on inflation dynamics and what it means for your portfolio is core for the next few years. If the guys making the decisions don’t know who does? Rosie and I will lay it all out for you this week. There are lots of bullish things Rosie likes as well and will look at some good ways (ETFs and stocks) to play them. It promises to be a lively discussion with a few nugets for investors to take away.
Tune in this week on October 28th at 7pm ET for our Fall 2021 Investors Guide to Thriving Virtual Roadshow with special guest David Rosenberg. Rosie has offered a free one month subscription to his research for those who sign up for our webinar this week. I’ve been following David for more than 20 years, it’s one of the best economics and strategy research services I know.
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