Over the last few days, several experts have expressed their concerns that inflation is here to stay for the next few years. Now, Jeremy Schwartz, global head of research for WisdomTree, is advising that investors embrace an overweight position in gold and other commodities. He told Kitco News, “We roughly have 3% in gold and 3% in broad commodities for the combined cyclical commodity broad-based exposure. Gold is an inflation hedge, which is a little bit more of a defensive asset, and broad commodities are a little bit more cyclical.” On the other hand, economists are warning that while the job market is rapidly improving, the economy is still far from “normal.”
Kitco News/Anna Golubova
Higher inflation for the next 5 years: ‘be overweight stocks, gold, and commodities,’ says WisdomTree’s research head
Higher prices are a reality that is here to stay, at least for the next five years, according to WisdomTree global head of research Jeremy Schwartz, who identities a number of new risks facing investors’ portfolios.
“One of our big picture views is that inflation is not temporary. You’ve heard this narrative from the Fed — is it temporary or permanent? And we have a view that over the next few years, you’re going to have above-average inflation from what the market has been expecting historically,” Schwartz told Kitco News.
The main drivers behind longer-lasting inflationary pressures will be higher demand, increased money supply, and rising money velocity, Schwartz explained, pointing to a sharp increase in the M2 money supply in the U.S. over the past year.
“The thesis boils down to all the COVID relief measures that have put a huge amount of money in the system,” he said. “One of the measures that we track is the M2 money supply in the U.S., which is up 40% over the previous year before the pandemic. And this is cash in people’s checking accounts.”
As the economy reopens, that saved money starts to go back into the system. “You see it in today’s labor shortages, supply pressures, and that’s going to continue,” Schwartz noted. “You had about $6-$7 trillion relief measures introduced to offset the pandemic.”
The COVID-19 pandemic was not a typical crisis either, WisdomTree’s global head of research added. The U.S. did not have to deal with a lot of market imbalances. And now, as consumers get back to normal lives, inflation could rise 20% over the next five years.
“You close the economy. You put a lot of money in people’s checking accounts to offset their lost income. And as you reopen, the pent-up demand is going to come out and be this cumulative price pressure increase of let’s call it 20% over the next three to five years,” he said. “It will have a more permanent impact due to that higher money supply, wage and supply pressures.”
More permanent inflation poses several significant risks, especially when it comes to protecting investments.
“If inflation is much higher than people expect, that’s where you start to look for other diversifiers. And that’s where we think things like commodities could have a big role,” Schwartz pointed out.
WisdomTree’s recommendation is to move away from bonds and embrace an overweight position in stocks, gold, and other commodities.
You can read the full article, here.
CNN Business/Anneken Tappe
Don’t be fooled by America’s strong jobs numbers. The recovery is far from over
Economists expect a super-strong jobs report on Friday. But don’t be fooled: America’s labor market problems — millions unemployed, worker shortages and worries about child care and health risks — will persist throughout the summer.
Even though the US job market is rapidly improving, the economy is still far from back-to-normal. Employers are expected to have added 700,000 jobs in June. Even if that holds true, the nation will still be down 6.9 million jobs compared with February 2020.
The unemployment rate is expected to inch down to 5.7% from 5.8% in May, according to analysts polled by Refinitiv.
Yet businesses are struggling to find workers, with various companies jacking up salaries to attract staff. That’s in part because America’s jobs mismatch issue is here to stay, at least for now, as businesses are still ramping up to cater to the newly revived demand for activities, such as outdoor dining.
Employers can’t hire workers fast enough, as many people continue to stay at home to care for their children or because they fear getting sick. Many who are looking for work are holding out for companies to raise pay and benefits — and some are able to be picky because of special pandemic unemployment benefits that will expire nationwide in September.
Also, everyone is hiring at the same time, making it more difficult for employers to find the right candidate for the job, Nela Richardson, chief economist at ADP, told CNN Business Wednesday.
Keep reading, here.
Investors should be ‘attentive’ to inflation concerns, strained supply chains: Bullard
St. Louis Federal Reserve Bank President James Bullard on the state of the economy and rising inflation concerns.
Watch the full interview, here.