Inflation Risks: Cautious on Equities, Bullish on Commodities
As noted, the setup I just outlined above if it comes to pass will present near and pressing upside risk to inflation… and that will come at a time where global growth reacceleration risk is starting to become a reality + as the chart below shows the Great Disinflation has stalled.
I don’t think we get a repeat in magnitude of the 2021/22 surge in inflation, but we are clearly into the higher-for-longer rate of inflation timeline, and that’s going to have important implications for the path of monetary policy, bond yields, and ultimately both yield sensitive assets and the stockmarket as a whole if things end up getting disruptive.
So I am advocating a cautious stance on equities given they are so overvalued, a cautiously optimistic stance on bonds (they are cheap), and a highly bullish stance on commodities as a key way to both hedge and participate in this theme.
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