FRED has economic data. The FRED Blog helps you take full advantage of it. The latest post looks at the top countries that hold U.S. Treasuries and graphs their dynamic rankings over time https://t.co/n4VBAF0JGF
As pointed out below, “stocks are increasingly seen as an inflation hedge,” so fund managers are piling in.
The idea that stocks are a hedge against inflation is not new and has not worked for over a century.
BofA’s Michael Hartnett’s latest “Flow Show” from Friday:
* above 4% on CPI where risk assets get twitchy…
past 100 years once CPI crosses 4% on average SPX -4% next three months, -7% next six months.”
Note that year-over-year CPI inflation was 3.8% through April.
Warren Buffett warned about this almost 50 years ago:
Fortune, May 1, 1977
Buffett: How inflation swindles the equity investor
“For many years, the conventional wisdom insisted that stocks were a hedge against inflation. The proposition was rooted in the fact that stocks are not claims against dollars, as bonds are, but represent ownership of companies with productive facilities. These, investors believed, would retain their value in real terms, let the politicians print money as they might.”
He goes on to describe when this belief peaked: “This heaven-on-earth situation finally was ‘discovered’ in the mid-1960s by many major investing institutions. But just as these financial elephants began trampling on one another in their rush to equities, we entered an era of accelerating inflation and higher interest rates.”
Finally, note that fund managers’ top three tail risks are in the chart on the right:
* Second wave inflation (40%)
* Geopolitical conflict (20%)
* Disorderly rise in bond yields (18%)
These three risks total 78%, and they could be argued to be variations on the same theme – the war will continue to drive crude oil prices higher, creating a second wave of inflation and higher bond yields.
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“Those who cannot remember the past are condemned to repeat it.”
– George Santayana, from The Life of Reason (1905)