Most investors have accepted inflation as evidence of economic growth. But not everyone thinks so. A small but growing group of people hold another view: rising costs, falling employment, slow growth-known as stagflation.
Jerry Braakman is one of them. Instead of waiting for the outcome, the chief investment officer of First American Trust is taking action to meet the outcome. He has been increasing his holdings in real estate investment trusts and technology stocks and selling financial stocks, which should theoretically be dragged down by a flattening of the yield curve.
Stagflation in the financial worldIt is often a sensitive topic because it is reminiscent of the days when oil prices soared and unemployment was high. Although the current macroeconomic situation is significantly different from that of the 1970s, there are similarities: temporary inflation has proved hotter and longer-lasting than expected, real economic growth is cooling and millions of people are still unemployed.
Economists can argue whether the "stagflation" label is exaggerated or prescient, but Braakman began adjusting his portfolio in June as inflation expectations hovered near more than 10-year highs and global growth prospects darkened.
"We will face an economy that is still growing but has slowed, and inflation will remain high," Braakman said. "so we are stuck in stagflation." 'in this case, real estate investment trusts and technology stocks will still perform well, and gold is starting to become attractive,'he said. His company manages $2 billion in assets.
The idea that we are or are about to be in a stagflation environment is still non-mainstream in the United States, where GDP is expected to grow by 6% this year and consumer confidence is improving. On Wall Street, corporate profits remain strong, with profits doubling in the most recent quarter compared with the same period last year.