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Nasdaq: Asset Managers Cite Inflation as the Number One Market Risk, Displacing COVID-19

April 05, 2021
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Article by Frank Holmes in Nasdaq

Inflation is top of mind right now for many consumers, businesses and investors. Responding to a recent Bank of America survey, asset managers around the world agreed that inflation is the number one market risk, displacing COVID-19 for the first time since February 2020.

Another survey conducted this month found that over three quarters of Americans were either “very” or “somewhat” concerned about inflation. Perhaps not surprisingly, younger Americans who have not yet reached their peak earning years were most worried.

There are many signs that inflation is already here: Commodity prices are up. Home prices are up. Energy prices are up. Shipping rates are way up. Used cars and trucks are through the roof.

And the trend is only going to accelerate as social distancing is relaxed and the economy steadily returns to “normal.” 

Thanks to “stimmy” checks and unprecedented money printing, real disposable income is set to have its biggest increase ever in any given six-quarter period, says Credit Suisse. The firm expects U.S. consumption to surge an “extreme” 10% this year, triggering a significant jump in new orders and new hiring—all of which is highly inflationary. This month, in fact, U.S. manufacturers reported the sharpest rise in new orders since 2014, according to IHS Markit.

The Pandemic May Have Made the CPI Obsolete

My question, as always, is whether we’re measuring inflation accurately. What if we’re doing it all wrong? As investors, we want to make decisions based on the best available data, so what should we do if the data is incomplete or flawed?

With prices climbing faster than what’s being reported, investors would be wise, I think, to get exposure to assets that are seeing some of the highest inflation right now and that are in a position to rise even more as the economy expands. That means real assets—metals and minerals, lumber, cement, energy and other commodities and raw materials. As I wrote in February, we may be on the verge of a new commodities supercycle, and it’s not too late to start participating.

That’s especially the case now that President Joe Biden has signaled his .....

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