![]() We can also do this for global or regional supply chain capacity. ![]() On the other side, we can look at commodity capex cycles to see when commodities are structurally oversupplied or undersupplied. This is because demand outpaces supply of real goods and services. If the number of monetary units is expanding more rapidly than various real-world resources (commodities, supply chain capacity, available labor, and so forth), then prices for various things will generally rise. Monetary inflation refers to the growth of the money supply itself. It depends on what school of economic thought you look at. Inflation is something that doesn’t have a precise definition. Monetary Inflation and Resource Constraints This article explores some of the nuances on how assets perform in inflationary environments. It also tends to hold up well in outright recessionary/disinflationary environments, at least compared to equities. Gold in particular tends to do well during stagflationary environments, where economic growth is decelerating but inflation is still pretty high. gold and bitcoin) have an eventual correlation with inflation but not necessarily at the exact moment of high inflation like industrial commodities do. However, commodities can be very volatile, with sharp pullbacks even in environments that are beneficial for them. Usually during inflationary environments, commodities are under-supplied, and it often takes years to bring on enough new supply, which weighs on real economic growth and contributes to a stagflationary situation. Almost by definition, if inflation is high, it means commodity prices are rising. oil and copper) tend to be the big winners in inflationary environments. This depends on valuation though in inflation-adjusted terms, a given house price might stagnate sideways for quite a while. The house price (asset) typically adjusts upward with inflation over time, while the fixed mortgage (liability) gets inflated away. Real estate tends to do better than stocks and bonds, especially if you have a fixed-rate mortgage attached to it. In addition, as bond yields rise, it puts valuation pressure on highly-valued equities. A company’s revenue is rising as they raise prices, but their expenses are rising too, and it’s hard to predict whether revenue or costs will rise faster. If the currency is unstable, it makes planning much harder. If the purchasing power of currency is relatively stable, then it’s easy for companies to plan for the future, make long-term contracts, and so forth. A bond is a promise to pay a certain amount of currency in the future, and the purchasing power of that currency is being diluted. Stagflation is when inflation is high, but growth is low or negative.Ĭash and bonds are obviously a rough place to be, because their yields are often below the level of inflation in an inflationary environment. Inflation, and specifically stagflation, makes investing more challenging. ![]() 5:16 AM ET SPY, GLD, VNQ, TLT, BTC-USD, TUR, GUNR, ACTV, AFMC, AFSM, AMER, ARKK, AVUV, BAPR, BAUG, BBMC, BBSC, BFOR, BFTR, BJUL, BJUN, BKMC, BKSE, BMAR, BMAY, BOCT, BOSS, BOUT, BUFF, BUL, CALF, CATH, CBSE, CSA, CSB, CSD, CSF, CSML, CSTNL, CWS, CZA, DDIV, DEEP, DES, DEUS, DFAS, DFAT, DGRS, DIA, DIV, DJD, DON, DSPC, DVLU, DWAS, DWMC, EES, EFIV, EPS, EQAL, ESML, ETHO, EWMC, EWSC, EZM, FAB, FAD, FDM, FFTY, FLQM, FLQS, FNDA, FNK, FNX, FNY, FOVL, FRTY, FSMD, FTA, FYC, FYT, FYX, GBGR, GLRY, GSSC, HAIL, HIBL, HIBS, HLGE, HOMZ, HSMV, IJH, IJJ, IJK, IJR, IJS, IJT, IMCB, IMCG, IMCV, IPO, ISCB, ISCG, ISCV, ISMD, IUSS, IVDG, IVE, IVOG, IVOO, IVOV, IVV, IVW, IWC, IWM, IWN, IWO, IWP, IWR, IWS, IYY, JDIV, JHMM, JHSC, JPME, JPSE, JSMD, JSML, KAPR, KJAN, KJUL, KNG, KOMP, KSCD, LSAT, MDY, MDYG, MDYV, MGMT, MID, MIDE, MIDF, NAPR, NIFE, NJAN, NOBL, NUMG, NUMV, NUSC, NVQ, OMFS, ONEO, ONEQ, ONEV, ONEY, OSCV, OUSM, OVS, PAMC, PAPR, PAUG, PBP, PBSM, PEXL, PEY, PJAN, PJUN, PLTL, PQLC, PQSG, PQSV, PRFZ, PSC, PTMC, PUTW, PWC, PY, QDIV, QMOM, QQC, QQD, QQEW, QQQ, QQQA, QQQE, QQQJ, QQQM, QQQN, QQXT, QTEC, QVAL, QVML, QVMM, QVMS, QYLD, QYLG, REGL, RFG, RFV, RNMC 210 Comments 265 Likes
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