Wall Street goes all-in on inflation

The smartest guys in the room are as undiversified this week as always. Stagflation is the mem dejour with BofA still leading that pack:

H2 view: macro backdrop = higher inflation, hawkish central banks, weaker growth, i.e.stagflationary; investment backdrop = rising Rates,Regulation, Redistribution (3Rs–Chart 6) & peak Positioning, Policy, Profits (3Ps); investment returns = low/negativestock/credit H2; optimal portfolio = H2 barbell oflong inflation (e.g. commodities, TIPS,small cap, banks, Japan) & long quality (e.g. cash & defensive utilities, staples, healthcare, REITs).

Peak policy: monetary policy driving absolute returns, fiscal policy driving relative returns; note pace of CB bond purchases decelerating from $8.5tn in ’20 to $2.3tn in ’21,and then to $0.3tn in ’22 (Chart 7).

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