Author Topic: Best stocks/sectors for higher inflation  (Read 4951 times)

NewbieD

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Re: Best stocks/sectors for higher inflation
« Reply #10 on: February 11, 2019, 12:20:07 AM »
I would say <2 years on interest bearing is a short duration. But it would depend on the other parts of the portfolio. I.e. if there is less than 10% equities, property and alternatives than 3 is pretty short.

And if the liabilities are very long the duration gap can still be at least a bit negative with investments of duration 5.


james22

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Re: Best stocks/sectors for higher inflation
« Reply #11 on: April 03, 2019, 08:03:09 PM »
I'm thinking to allocate 5% to the financials index for just this reason.

How to Defend Yourself from Inflation

The most obvious way to defend yourself against the prospects of any future significant dollar weakness is to devote a portion of your portfolio toward this well ahead of time.

This implies to me a need to include physical gold as a store of family wealth. And from an equity perspective, look to areas that might grow as fast as inflation itself (or at least benefit from inelastic demand).

...

But for me, I like banks as a place to hide out.


https://realmoney.thestreet.com/articles/02/12/2018/why-i-bank-america-and-goldman-sachs-inflation-hedges-market-recon%2Bbank+stocks+inflation+hedge&client=safari&rls=en&hl=en&ct=clnk

Get into Bank Stocks Soon Because Inflation Is on the Way

https://investorplace.com/2018/08/get-into-bank-stocks-soon-because-inflation-is-on-the-way/%2Bbank+stocks+inflation&client=safari&rls=en&hl=en&ct=clnk

Helps that Buffett likes banks too.
BRK, BAM l SV, EM l Fannie Mae, Freddie Mac l Stable Value, Cash Value

sarganaga

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Re: Best stocks/sectors for higher inflation
« Reply #12 on: April 04, 2019, 11:35:45 AM »
If you're concerned about inflation, why not allocate a small percentage of your portfolio to gold coins? This also gives you some assets outside of the financial system in case things really go sideways.

SHDL

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Re: Best stocks/sectors for higher inflation
« Reply #13 on: April 04, 2019, 12:46:12 PM »
Also don’t forget about TIPS.  It’s normally a boring, ultra conservative instrument, but if we do get a crazy regime change in the way monetary policy is conducted it could end up outperforming almost any other asset class.

Nell-e

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Re: Best stocks/sectors for higher inflation
« Reply #14 on: April 04, 2019, 01:32:23 PM »
Stocks in high speed broadband because of the companies' pricing power.

Spekulatius

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Re: Best stocks/sectors for higher inflation
« Reply #15 on: April 05, 2019, 04:54:20 PM »
I believe they banks don’t do well with high inflation rates. I think part of the reason is that they capital (which is partly held in liquid assets) gets eroded by inflation. At least that my observation from looking at several Emerging Market banks when inflation turns up. The sharply rising interest rates are also often correlated with economic distress.

Cable stocks have too much debt to be good in a high interest rate environment.
« Last Edit: April 06, 2019, 04:44:33 AM by Spekulatius »
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scorpioncapital

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Re: Best stocks/sectors for higher inflation
« Reply #16 on: April 06, 2019, 03:31:03 AM »
I feel that if your pricing power is enough to raise your prices faster than the cost of your debt then debt is fine. If it just matches the increase , the debt is netural, doesn't really confer a benefit other than having money you need. If it exceeds the inflation rate then the debt has a real benefit.

As for banks fixed income asset side of the balance sheet I'm just wondering if they can reinvest this at higher rates and therefore increase earnings. It can charge customers more for the debt. I know one card I have is charging me 8% when rates are 2%. Banks can set much higher rates than the fed rate.

Spekulatius

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Re: Best stocks/sectors for higher inflation
« Reply #17 on: April 06, 2019, 05:30:24 PM »
“Marketplaces”, which take a cut out of a transaction should be good stocks in an inflationary environment.. the cost of goods trades might go up, but that is not a problem for a marketplace, which just takes a cut from the transaction. A dealer wholesale/ distributor has probably the same characteristics, but might have an issue where the inflationary inventory eats up more and more working capital.

Google, FB, eBay etc are marketplaces.
To be a realist, one has to believe in miracles.

SharperDingaan

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Re: Best stocks/sectors for higher inflation
« Reply #18 on: April 07, 2019, 08:28:55 AM »
I believe they banks don’t do well with high inflation rates. I think part of the reason is that they capital (which is partly held in liquid assets) gets eroded by inflation. At least that my observation from looking at several Emerging Market banks when inflation turns up. The sharply rising interest rates are also often correlated with economic distress.

Cable stocks have too much debt to be good in a high interest rate environment.

Normally, banks benefit from inflation as it increases the size of their loans.
If the thing you want to buy costs 10% more, and you borrow to buy it (ie: Visa, MC), the loan amount automatically increases 10%. If ability to pay hasn't really changed, larger balances 'float' over the 'due date'; and the bank earns both more interest, and at a typically higher spread.

But if the bank is coming off a long period of ultra-low interest rates?
Debtors have already used that ultra-low floating rate to maximize the amount they could borrow. Higher interest rates from inflation, trigger default losses that overwhelm the additional interest spread, lowering net income. Net income might TEMPORARILY increase until existing loan loss provisions are burnt through, but it's wide open to manipulation.

And a good banker, WILL manipulate  ;)
Hence, you're reeally betting on the relative 'skill' of the banker.
And 'quality' takes on a whole new meaning.

SD




« Last Edit: April 07, 2019, 03:48:35 PM by SharperDingaan »

Schwab711

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Re: Best stocks/sectors for higher inflation
« Reply #19 on: April 07, 2019, 08:56:18 AM »
Visa/Mastercard
MCO/SPGI

All earn a percentage of a nominal amount, in non-competitive industries. If nominal growth is higher, earnings will be higher.