RE:RE:Inflation Part 2 Good post Migraine
In some sense inflation is transitory in that it has peaks and valleys like anything else.
You are right in that in a high inflation/high interest rate environment one has to be careful where to invest. As I mentioned in my previous post, in the early 1980s whe interest rates where high, I bought Government of Canada 20 and 25 year bonds and significantly reduced my stock holdings. Many of these bonds I bought at around 40 cents on the dollar compared to the face value with a coupon between 10 and 12%. This provided both fixed income and capital gains later when I sold them for a higher price after interest rates went down.
In terms of current strategy, I am overweight cash, hold no bonds since bonds make no sense if you think interest rates are going up and the rest is in stocks. About 70% stocks and the rest in cash. What I have found over the years is that a signal that a "sea change" is coming in terms of stocks is heightened volatility and a rising VIX. In the lead up to the change in direction the volatility provides opportunities for a some quick gains (hence the cash holdings).
My base case planning assumption is that we will see rising interest rates in 2023 - as much as 300 to 500 basis points. So between now and then I am content to keep the majority of my holdings in stocks. Once I see that the volatility has run its course and there is a clear signal from The Fed that it will be making multiple increases to interest rates, I will increase my cash position and set the stage to overweigh bonds as interest rates rise.
Later as inflationary pressures ease and interest rates go back down I will sell my bonds at a profit. This is bascially the same strategy I employed way back in the early 80s and more recently in 2007/08.
As for energy prices, I agree that the zealots at least in the US are doing all that they can to destroy American oil production and will push for renewable energy which has a whole bunch of its own problems. Personally, I think the market is realizing this since as an example one can look at the stock performance YTD of BEP vs SU.
All that said however, I do not see oil prices going much more than possibly 10-20% from current levels since historically the world price of oil tends to migrate back to the marginal cost of production from either direction - up or down.
Right now I don't hold any oil producers. In fact I sold off my holdings in renewables like BEP some time ago as I saw them way overpriced. I hold pipelines and electrical energy companies in the energy part of my portfolio. Frankly, I see greater potential for price increases and profit growthgoing forward for electrical energy producers than for oil producers.
If during the volatile stage I spoke of earlier results in oil companies getting the sheet kicked out of them then I will swoop in for a short term gain.
Don't know if any of this makes sense to you.