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Wall Street thrived from Goldman to JPMorgan in the New Era of Inflation: Economics


It’s the invisible power that rocked Wall Street: The revival of post-lockdown inflation could change everything in the world of cross-asset investing.

As the U.S. disobedience to the thriving economy drives market-based price expectations to more than a decade’s highs, Bloomberg solicited the views of top currency regulators on battles. Hedging strategies make or break ahead of them.

One lesson: The economics of trading from stocks and real estate to interest rates will be reversed if escaped price predictions are to be believed.

However, there is a clear division. Goldman Sachs Group Inc. said commodities have proven their strength for more than a century while JPMorgan Asset Management is skeptical – preferring to hide in alternative assets like infrastructure.

Pimco, meanwhile, warns the misplaced market’s inflation phobia leaves central banks likely to remain unattainable in the next 18 months.

The comments below have been edited for clarity.

Alberto Gallo, partner and portfolio manager at Algebris

At this point we don’t know if inflation will be sustained, but it’s a good start. What we do know is the market is positioned completely wrongly. Investors have long been QE assets such as Treasury, investment-grade debt, gold and technology stocks. They were long Wall Street and short Main Street for a decade.

There will be a flow of real economy assets like small capitalization, finance and energy stocks instead of interest and credit, and that will create a lot of volatility. We like convertible debt in areas of value that are involved in the cyclical increase. We also like merchandise.

We are moving from an environment where central banks drive acceleration by keeping interest rates low while governments are austere, to one where governments and central banks are. are working together.

Thushka Maharaj, global multi-asset strategist at JPMorgan Asset Management

Commodities tend to be volatile and do not necessarily have good inflation protection. For index-linked bonds, our research shows that their long-term life is greater than the pure inflation offsets the asset offers. It’s not the top of our list of inflation hedging.

If inflation rises and continues to rise – and we think it’s a low-probability event – equity sectors moving toward a recovery will provide a good investment profile. We also like real assets and dollars.

We expect volatility in inflation, especially at the headline level over the next few months, mainly in Q2, due to the impact of the base, short-term oversupply and disruptions in the supply chain. due to long locked time. We take this as temporary and expect central banks to look at short-term volatility.

Christian Mueller-Glissmann, managing director of portfolio strategy and asset allocation at Goldman Sachs Group Inc.

We find that in the context of high inflation, commodities, especially oil, are the best hedge. They have the best track record of the past 100 years to protect you from unforeseen inflation – a cause of scarcity of goods and services, even such wage inflation towards the end of the years. 60. Stocks have a mixed track record. We like stocks with value because they are short term.

The biggest surprise is gold. People often consider gold the most obvious inflation hedge. But it all depends on the Fed’s function of response to inflation. If the central bank doesn’t peg yields at the end of the period, then gold is probably not a good choice because real yields could rise. We see index-linked bonds like gold.

The scenario of inflation maintaining above 3% and increasing is not our basic case, but that risk has certainly increased compared to the previous cycle.

Nicola Mai, sovereign credit analyst at Pimco

Looking through the short-term volatility caused by energy prices and other volatile price components, we see inflation remains low in the short term, with central bank inflation targets elusive in The next 18 months or so. The global economy has the capacity to meet growing demand. However, if spending is increased steadily over the years, this could lead to higher inflationary pressures.

Overall, we like curve strategies and believe that US TIPS provides reasonable coverage for excess inflation. Goods and real estate related assets will also benefit in an environment of increased inflation.

Mark Dowding, chief investment officer at BlueBay Asset Management

Real assets such as assets and commodities hold their best value in inflationary situations. The maturity on bonds is not attractive because yields will rise higher over a number of years if inflation normalizes at a higher level than we used to. The most overlooked risk is having too much complacency because people’s inflation expectations are anchored on what they’ve seen over the past five to 10 years.

If there is a new economic slump, policymakers will be in a predicament. Hence, there is the desire to make sure that you do not miss the goal. Like a golfer hitting the ball through a dreadful danger, there’s a temptation to hit big! Ultimately, this means that the inflation outcome should be neither higher nor lower.

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