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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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.