Gold, forests, property stocks, inflation-linked bonds - these are just some of the assets investors are pouring money into on the view that the recent explosion of government spending and central bank stimulus may finally rouse inflation from its decade-long slumber.
FILE PHOTO: NYSE-AMEX Options floor traders from TradeMas Inc. work in an off-site trading office built when the New York Stock Exchange closed, due to the outbreak of the coronavirus disease , in the Brooklyn borough of New York City, U.S., March 26, 2020. REUTERS/Brendan McDermid
So if inflation really is, as the IMF put it in 2013, “the dog that didn’t bark”, failing to respond to all the central bank money-printing unleashed in the wake of the 2008-9 crisis, why should investors prepare for it now, especially as demographics and technology are also conspiring to tamp down inflation across the developed world?
“Gold worries about such things long in advance. It has risen through this coronavirus with that down-the-road-risk top of mind,” he added. Inflation hawks also cite a trend of de-globalisation, where shrinking international trade and Western companies bringing production back to their own countries leads to higher prices.
So inflation might be some years away, but banks are advising clients to pick up cheap hedges. Morgan Stanley suggests U.S. 30-year linkers, while Natwest advises buying 30-year UK linkers and 10-year euro zone inflation swaps.
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