Chris Forrest- Senior Partner and Principal Adviser
Sovereign Wealth Partners
Never in history have we had such low interest rates, massive monetary and fiscal stimulus and benign inflation.
We have written previously about inflation, market expectations and our view. We thought it would be interesting to our enthusiastic readers to hear from two leading thinkers.
In the red corner, we have the ‘inflationistas’. Woody Brock of Strategic Economic Decisions expands on his view here. Their central view is that an inflation outbreak is inevitable from the sheer scale of monetary and fiscal stimulus used to get through the pandemic. This inflation will become secular (long term) as the demographics of an aging population kick in, leading to upward pressure on wages from a proportionally declining workforce wanting to be paid more for their labour, thereby maintaining upward pressure on inflation.
In the blue corner we have the ‘anti-inflationistas’. Mark Arnold and Jason Orthman of Hyperion Asset Management make their case here. Their central view is that the causes of an inflation outbreak are not present and that any bump in the near term reflects an adjustment of interrupted supply chains normalising. Thereafter, we can expect normal modest inflation. They hold that there is simply too much debt and, alongside continual technological innovation displacing old world business models, inflation will be under downward pressure. Interestingly, they believing an aging demographic is deflationary and that a ‘hollowing out’ of the middle class will not put any upward pressure on wages.
So even the experts are divided and fiercely so. You might find yourself reading the first opinion and being utterly convinced. You might then read the second opinion and be utterly convinced again. Time will determine who is right in the long run.
Investors may well ask, who should I believe? What does this mean for my portfolio? What should I do? Those answers are not easy but a good start is to have a clear set of measurable objectives and to invest towards them with discipline.