JRI, sorry, I'm not really being clear at all, I know. It's just that I wanted to avoid typing a lot.
In the last really bad inflation cycle, real estate, gold, and energy were all great investments.
I am not a very strong believer in the old adage, "The five most dangerous words are: 'Things are different this time'." That's because things are always different. Each market cycle differs from the last. For example, in the early parts of the bull market, the stocks that led us were traditionally recession resistant stocks--things like drugs and foods. MRK and KO performed great. Tech stocks were great trading vehicles, sure, but they weren't long term investments. Intel's performance from 1983 through the end of the decade was horrid. Everyone who bought that cyclicality argument missed out on a heck of a lot in the 90's.
Back to inflation. In the 70's, a big piece of the inflation (and the recession) was supply driven. This wasn't just confined to crude. Wage and price controls that were erroneously enacted in the early 70's screwed up supplies throughout industries. Inventories built up, and the high inventories forced adjustments. (Yes, demand was certainly a factor, and higher prices had a lot to do with that; I'm just focusing on the supply side and inventories right now.)
Fast forward to today's environment. In the recessions of old, inventories would be building fast. Look at today's inventory number that was reported. 0.0%. Just in time inventory management is protecting a lot of companies from issues that were present a couple of decades ago. That doesn't mean that there won't be problems if we're in a inflation-driven recession; it just means to me that the imbalances will be in different areas. And while gold performed wonderfully back in the 70's, note that the world capital markets are very different now. Most governments don't feel a need for gold reserves as a currency and stability hedge. If inflation accelerates, will they change their tune? Heck if I know.
Energy markets have rallied to the extent that now the upside is limited. Even using a normalized but aggressive price for natural gas, most of the stocks are trading around 6x cash flow, around historical averages. I've recently liquidated most of my oil and gas hedge fund because I just don't see any great opportunity there any more. And note that the biggest reward in energy this time around is in natural gas. Back in the 70's/80's, crude oil was rewarded much higher than natural gas.
And real estate? I don't know anything about real estate.
It just seems to me that the economy is such a different world that imbalances will cause opportunity in a different place. Looking for that place is what I spend most of my day doing now.
Forgive my verbose rambling. This is all of the top of my head, and is kind of a stream of consciousness. |
