Your assumptions:
Economic slowing will be brief, and its impact on earnings mild, if any.
A slowing economy automatically means slowing inflationary pressure.
Resumption of economic growth will occur at a rate compatible with todays lofty valuations.
My Reality:
There's no end in sight to the current economic slowing, and no assurance that it won't deteriorate into recession. The full impact of a rate hike is felt 6-9 months afterwards, and a negative savings rate doesn't accomdate a re-aceleration in spending in 1-2 quarters (unless we sell equities to do so - and you're NOT going to tell me that's bullish. -g-). Retailers are already feeling the impact of economic slowing, and there will be big pressures on jqp's pocketbook this winter. I expect heating bills to be 2-3x the norm best case scenario.
The real inflation, in fact, is yet to be seen, and can not be controlled by the fed. That is, the inflation of imported gods and raw materials, commodities. You've noticed that oil refuses to come down. Base metals, other commodities, they will begin an inflationary ascent as well (lumber is excluded).
As for the best hedge against inflation... Over long periods stocks outperform, but during the brief periods when inflation exceeds growth, stocks are horrible performers and hard assets excel.
Did a google search and turned up this article. Covers the later point.
mskousen.com |
