Friday, April 1, 2022

Commodities up, bonds down, and stocks mixed - An inflationary war environment

The choice when faced with inflation war and inflation. The choice when faced with a lingering demand shock and now a supply shock. The old tried and true method is to hold bonds. Bonds have been the great diversifier for decades, but the world has changed. The safe asset is now the risky asset. The risky asset is now a safe asset. The non-traditional asset, commodities, is now a core asset. This switch started before the Ukraine War. The sanction world is just an add-on to the existing new inflationary world.  

There may be mean reversion in the second quarter from the extremes, but that may only be a temporary reprieve from an inflationary world that is far from transitory. With the Fed expecting inflation to be 4.3 percent for 2022, fixed income will need further adjustment. Yet, the growing possibility leaves us in a stagflation world that makes any investment choice more difficult. Thus, the risky asset of yesterday may be a safe asset tomorrow. 

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