Inflation to ‘bounce hard’ over next 6-12 months

Damien Klassen Nucleus Wealth inflation

3 March 2021
| By Laura Dew |
image
image
expand image

Higher inflation expectations are expected to continue for the next 12-18 months after February saw bond yields reach the highest level in a year.

US Treasury bond yields rose steadily in February to reach the highest level in a year, prompting concerns of rising inflation.

Nucleus forecasted inflation would “bounce hard” over the next six months, especially in the US, over factors such as the low US dollar, rebuild of the inventory cycle, structural changes in supply chains and consumption following COVID and the increased US minimum wage. However, it would avoid any major hyperinflation.

Damien Klassen, Nucleus Wealth’s head of investments, said policymakers were enacting a policy of ‘zombification’ to limit bankruptcies, increase debt and keep interest rates low. This would limit short-term pain, but hinder a healthy economy.

“Someone who can’t pay their rent is not evicted but allowed to accrue debt. Don’t foreclose on those who can’t pay their interest. Instead, build up their interest payments into a larger debt burden,” Klassen said.

“The end game of this practice will be a cohort of zombie consumers and businesses, weighed down by debt burdens too massive to ever pay off but supported by interest rates low enough to keep them from defaulting.

“This zombification is inflationary in the recovery phase but deflationary soon afterwards as oversupply swamps demand.”

Klassen said the firm was positioning its portfolios for a run to value that would last for 6-12 months and had been moving out of consumer staples and growth stocks and into value stocks like travel, banks and energy.

“We believe the important investment factor for 2021 will be managing the inflation scare, followed by its likely disappointment,” Klassen said.

“There are a number of factors that could extend the duration of the elevated inflation, the chief being government stimulus.

“We are expecting it to be six months or more before it is time to switch back into the stocks that are resistant to deflationary pressures.”

Read more about:

AUTHOR

Recommended for you

sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry

MARKET INSIGHTS

James Patterson

How much did IRESS pay Deloitte for this analysis? Not sure they are the arbiter of intelligent forecasting in this spac...

21 hours ago
Howard Elton

Article makes no comment that the advisers leaving industry are older and have many years of work an life experience w...

2 days 4 hours ago
Peter Robinson

This article appears to overlook the fact that there must be a fairly large group of advisers who missed out on the expe...

2 days 4 hours ago

ASIC has secured travel restraint orders against a financial adviser while he is the subject of an investigation into alleged financial misconduct....

4 days 22 hours ago

Insignia Financial has unveiled a new operating model and executive team, including a new head of advice, while three senior executives are set to depart the licensee....

2 weeks 2 days ago

Analysis by Chant West of the annual performance of growth superannuation funds has uncovered which ones see the best performance....

1 week 1 day ago

TOP PERFORMING FUNDS

ACS FIXED INT - AUSTRALIA/GLOBAL BOND
Fund name
3y(%)pa
1
Ardea Diversified Bond F
144.00 3 y p.a(%)
3
Hills International
63.39 3 y p.a(%)