Inflation and especialy elevated inflation could seriously undermine investment returns. Therefore efficient tactics against it need to be developed in order to prevent or at least dampen the defects of inflation. Here I will name several broad strategies that could be of help:
- Avoid broad portfolio diversification
- Stay long energy, materials and industrials against shorts in all other sectors
- Stay liquid to buy depressed financial assets
- Own actual and/or implied interest rate and equity volatility
- Short bonds with fixed rate against stock
- Own some floating-rate bonds
- Own some gold
- Own inflation protected bonds if available
It might be surprising for some but inflation at a small pace is usually much preferred over deflation. Why? Well, the best reason I could come up with is that in a deflation environment people start losing their jobs. With product and services getting cheaper, investment and expansion is much tougher.
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