I was thinking of starting a thread for investing in a changing macroeconomic environment.
In developed economies, public and private debt is reaching unsustainable levels, and the macro picture is therefore changing. In developed economies, public debt has been swelling for the past 20 years, and zombie companies are the new normal. In Western democracies, real repayment of debts seems unlikely. Central banks’ and governments’ economic policies aim for economic growth to reduce this debt burden. If growth fails, inflation/stagflation may potentially reduce the debt-to-GDP ratio to a more sustainable level.
Which asset classes should one invest in in these environments? Why? What different indicators should be monitored to detect this development in time? I’ve outlined some of my own thoughts here. Please correct and supplement!
Weakening inflation:
- bonds
- growth stocks
Deflation:
- cash/deposits
- bonds
- growth stocks
Transition from deflation to inflation/stagflation + central bank yield curve control:
- value stocks
- commodities/precious metals and their producers
- real estate investments
- leveraging debt
- emerging markets
Transition from deflation to inflation/stagflation + rising interest rates:
- value stocks
- commodities/precious metals and their producers
- leveraging fixed-rate debt
Inflation/stagflation:
- commodities/precious metals and their producers
- stocks of companies with pricing power, especially companies whose cost structure does not rise with inflation. E.g., energy producers?
- stock markets of economies benefiting from rising commodity prices. E.g., Russian stock markets?
