Winning Plays for Rising CPI and (Dare We Say It) Stagflation

Feb.17.11 | About: The Western (WU)

No matter what the Fed says, inflation is here and unemployment isn’t abating. The Fed has finally acknowledged the eye-popping price increases in gasoline, oil and food, while emphasizing that core inflation is under control. I don’t know why they think we’re so dumb, but no one’s buying it.

These higher costs are slowly being handed to end consumers, but with unemployment still well above 9%, companies are going to find it very difficult to pass on expenses. But that can only last so long. With Asia and LatAm growing, the demand for oil and food will only increase, putting added inflationary pressure on us here in the U.S. But make no mistake – high unemployment and rising inflation = stagflation. “When inflation and economic stagnation are occurring simultaneously, a policy dilemma results since actions that are meant to assist with fighting inflation might worsen economic stagnation and vice versa.” (Wikipedia)

Chart created using Hidden Levers app

I’m not going to waste everyone’s time talking about what the government or the Fed should or shouldn’t do. All the financial media this morning are talking about food prices, from Chipotle’s (NYSE:CMG) rising costs of grains and meat to CPI of 2.8%-3% being healthy. I’m more interested in finding the right investments to navigate this environment, without getting caught up in all the noise. Using those bits of news to form an economic opinion, I used the HiddenLevers macro-trend screener to find investments that would rise as CPI rises. Then I narrowed those down by charting them against Agricultural Commodities , and came up with two solid plays for this environment: PIMCO Commodity Real Ret Strat Admin (PCRRX) and Western Union (NYSE:WU):

Chart created using Hidden Levers app

I can’t help but think our government has made a lot of mistakes to get us here. But now that we are here, I am going to stop wasting time arguing about fixing it, and start trying to make the most of it.

Disclosure: No positions held.