What kind of inflation is coming?

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BofA with the note. I agree with the conclusions:

Four futures for inflation

A different asset allocation is warranted depending on what you believe about inflation and its effects.

1. Transitory and good: on this view, the good news about“bad” prices is that those prices are a sign of a faster-than-expected economic rebound. Temporary frictions can be resolved, and faster growth with low risk of a price spiral should benefit cyclicals like financials and floating-rate & lower-rated credit.
2. Transitory and bad: on this view, hopes for a fast and furious reopening prove ill-founded. The future return to a cooler, “secular stagnation” economy would mean that any selloffs in mega-cap, deflationary tech& IG credit should be bought aggressively.
3. Permanent and good: on this view, modestly higher wages can create more incentives for companies to expand capacity and boost productivity, with positive-sum effects on the economy. Since many firms enjoy pricing power and record-high margins, they can afford to invest for the future, so investors ought to own industrial companies, advanced materials and other resources.
4. Permanent and bad: investors who remember the 1970s & 80s know that uncontrolled inflation can do real damage. Investors who believe in a serious risk of repeating that era likely already own TIPS, gold, and other real assets, or ought to.

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.