18 October 2021
Welcome to a new week of trading.
If you are a regular viewer of financial TV, like Bloomberg, MSNBC etc, you will have heard the term “transitory”, as in “transitory inflation”, at least a thousand times in the last few weeks. It’s the buzz word of the month and is supposed to indicate that the current rise in inflation will be short-lived. We’ve heard it so many times, it’s driving us nuts. Why? Firstly, because the word “transitory” got under our skin and now we can’t get rid of it. But more importantly, because we think inflation will be with us for a while …. it won’t be transitory.
Inflation is everywhere
The global energy crisis, yes crisis, is causing spikes in energy prices, which in itself contributes to inflation. But the secondary effects may be even worse. A lot of energy-intense factories, like aluminium smelters and plants for other metals, have been shut down because of high energy prices that have made it uneconomical to keep them running. This is leading to scarcity, which drives up prices.
On top of that, the global semiconductor shortage is impacting many industries, including the Automotive sector. In this sector, the chip shortage is driving up prices for new and used cars. But other sectors are similarly impacted. For instance, Apple will be making 10 million fewer iPhones because of capacity shortages for the iPhone 13 Bionic chip at its supplier TSMC in Taiwan.
And then there’s is the relative lack of migration due to COVID. This has led to skills shortages around the world. Just in Australia, we apparently need 2 million new migrants in the next 4 years! If you’ve tried to hire new staff recently, you will have found it’s very hard to find the right skills at a price that was normal just last year. Wage demands have been going up and we think wage inflation will be with us for at least another 18 months, until migration patterns start to get back to normal.
Protect your portfolio from rising inflation
So, the message for this start of the trading week is; forget transitory. You need to be ready for rising inflation that will be with us for a while and adjust your portfolio accordingly. Think gold, oil and, dare we say it, Bitcoin. Also, buy stocks that have pricing power, i.e. market leaders and companies with unique technologies as well as companies that have business models that allow for easy price increases, like Software-as-a-Service companies. Check out Marc & Stuart’s Top Picks for some inspiration. Happy investing!
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