Inflation/Stagflation coming?
No, because
Thatâs what tariffs do â artificial inflation. Iâm trying to wrap my head around what the intentions of the yellow clown truly are. Is it to dampen the huge accumulated debt with long term inflation?
IMO, that was always the only way out.
Long duration dollar bond holders should be scared.
One off bump though, it doesnât trigger long term inflation.
JPOW tells us itâs just transitory 
Actually it is pretty complicated. If the inflation is expected the interest rates just go higher and youâre still not rid of your debt. And with so much of US debt currently being issued as 3-month US treasuries it is pretty hard to get a significant inflation surprise.
(which is why there is so much talk about the US potentially forcing other nations to convert some of their US debt in longer term treasures at a still low interest rate, in exchange for things like lack of tariffs or security coverage)
Also long term tariffs may not lead to extra inflation as in the end theyâre extra taxes and hence would be expected to cool the economy, just like interest rate hikes.
I try not to overthink his decisions. My theory is that he sees it as a way to bully other countries (and didnât expect them to fight back). He thinks the US should rule supreme and he should rule supreme within the US (and thus, the world). To me, he also doesnât understand the concept of attrition (that if people are fighting back, he can win any one fight, or actually several of them, but he canât win them all as the US power and influence gets reduced each time they have to actually use them).
In short, chaotic decisions should be expected on his part, itâs not actually possible to plan on any one path he may decide to take so, as investors, we should just assume the future behavior of the US is a big black box (as opposed to the mostly predictability we have had so far) and plan accordingly.
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I think few things are being attempted
- bring back manufacturing jobs to USA
- Reduce debt
- consolidation of power (Russia style)
- Make other countries pay for #1 & #2 using US military might & economic power
Not sure if all is true but some of it is for sure. I think #4 will depend on how other countries react (knee down or stand up)
Interesting video from DW
I agree and was expecting this scenario (stagflation) before trumps second term.
My assumption was that low PE mining and energy stocks will outperform. Overweight on russia (gazprom, lukoil, etc.) In hindsight not the smartest choice in execution although the assumption may have been rightâŠ
So the key question to me is: how to position the porrfolio for stagflation?
Exactly, so if you hold long bonds and rates go higher, the value of your bonds tank.
I had the same painful experience with Russian stocks (gazprom, phosagro, etc.) though with the ending of the war, maybe these will be rehabilitated to some extent (at least phosagro, gazprom may still have political difficulties in addition to a destroyed pipeline).
I sold most of my energy stocks at the top and looking to get back in, but donât find the value as attractive as during and before covid times. Maybe it is unrealistic to get such attractive valuations again?
The million dollar question. I like real/hard assets such as land, real estate and commodities, but the risk that the âstagâ part hurts prices means Iâd like to see the recession come before I buy. This is why I bought gold first as a non-economic metal together with miners. Buying oil companies and other mining companies could be an idea, but again, there is the risk if the âstagâ comes first.
REITs are also a possibility. Find ones with capital structure favouring long term fixed debts and maybe they benefit from inflation.
If the âstagâ comes before the âflationâ then bonds might be a tactical play: wait for the cut in rates from the Fed and hope it feeds through to the mid/long end of the curve - Iâm skeptical of this as we saw during the last cut that longer duration bonds rose, I think precisely due to the inflation concerns. However, maybe 3-7 year bonds might work (or TIPS). I guess the easiest is to be on the other end of the bet: be a US home-owner and take a 30 year fixed mortgage.
Maybe staying out of cash and being in short duration assets and reinvesting aggressively. I moved some assets to CHF to diversify and hopefully side-step some issues.
I guess the most important is to keep your job so that you have an income stream to deal with whatever comes (not idea for those wanting to retire).
EDIT: saving chart for future reference:
I would say stagflation might happen in US but not everywhere in the world at same time. So asset allocation & regional allocation should also be the main approach in this case.
Almost at buy signal. Letâs see where weâll be by the end of the week.
Yes, the market seems ready for another run up.
I think this all depends on Liberation Day. If this gets unexpectedly watered down, then I think weâll have a massive rip up.
Honestly Iâve totally stopped caring about whatâs going on with Trump, itâs all so erratic and inconsistent that I wonât act on anything other than my own plan.
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Are you sure, you will buy if market goes down by 15% (your buy signal)?
I have observed when things get bad, we change the story in our own minds 
because the narrative which would push stocks down will not be pretty.
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10% on VWRL and 15% on the NASDAQ100 to get something leveraged. Edit: yes, I am totally sure I will do it: 30% of liquidity/gold plugged into the above at every 10%/15% drop. Cognizant that 30% drops in all-world are pretty rare, I expect I wonât actually hit the third buy signal, so if that doesnât happen Iâll put the rest into the 3A. Iâm not confident weâll even hit -20% on VWRL by EoY.
Not me, and actually not bothering with ANY narrative is attaining Neo seeing the Matrix-level zen. But really, I get very upset when people change their story to fit whatâs happening/what theyâre doing and why, so as you can imagine I get very upset, with most people, most of the time.
The only narrative that matters to me is âlong-term compounding in low-cost, broadly diversified index funds is very likely to work wellâ 
Edit: and weâre in Switzerland and earn CHF, if thereâs a place to be when the world goes to shit itâs here
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Even though I agree that people shouldnât change their plan. I think we need to recognise that everyoneâs plan is based on information available at given moment.
For example -: until last year , I think people investing in US were mainly thinking about earnings, valuations, economy and interest rates. These mainly impact return on capital invested.
Now they need to worry about other things when it comes to US. Hence itâs understandable when plans also change.
Three big events that changed the world in last few years
- COVID
- Ukraine war
- US foreign policy pivot
Itâs not so strange that this might change allocation strategy also
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Hmmm, to me this feels contrary to everything that Iâve come to believe, which is backed by evidence, regarding investing. To look at it from the flipside:
What would/should/could anyone do regarding any of the above big events? To me being reactive is a foolâs errand for most investors, including myself, but people can be proactive. If oneâs worrying about everything they canât control theyâll probably go mad and certainly jump from mistake to mistake, or get lucky.