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Runaway Inflation? If So, These Are The Stocks To Buy

Mar. 01, 2021 9:35 AM ET38 Comments
Logan Kane profile picture
Logan Kane


  • The US is still restraining the supply of essential goods via tariffs and Covid restrictions while printing money for stimulus. This is a recipe for inflation.
  • A look at which sectors perform best (and worst) in inflation and rising rates.
  • Some negatively correlated ideas that can help your portfolio.

Inflation is like toothpaste– once it's out, you can hardly get it back in again.

-Karl Otto Pohl, German-Swiss economist, 1929-2014.

Federal Reserve chairman Jerome Powell fielded a lot of questions on inflation in his semi-annual testimony to Congress in Washington DC last week. He acknowledged that the inflation rate would be "volatile," but did not see the changes being large or persistent. Meanwhile, at home in Texas, I've seen intermittent shortages of items as disparate as bottled water, used cars, ammunition, appliances, lumber, precious metals, computer chips, and dress shoes. Oil prices are already back above $60 per barrel while the Federal government takes steps to restrain oil production. It's almost a perfect storm for inflation.

The US government could be about to make a classic macroeconomic blunder here, which I'll explain below.

Most economic recessions come when aggregate demand falls from people losing jobs, debt coming due, etc. Examples of this include 2008 and the Great Depression of the 1930s. However, a drop in the American public's standard of living can also come when aggregate supply shrinks. The most commonly cited example of this is the oil shocks of the 1970s and the ensuing recessions. Economists refer to this kind of event as a "supply shock," and the resulting inflation as "cost-push inflation." Together, they can create stagflation, which is extremely expensive and difficult to get rid of once it begins. If it's allowed to happen, stagflation will create totally avoidable misery for millions of people.

Cost-push inflation (stagflation)

Source: Wikipedia

I'll help you interpret the above graph really quickly, with cars as an example. At the beginning of 2020, we were at the intersection of point Y and point P, which is a balanced market.

Unlike other sectors like travel and entertainment, demand for cars has been

This article was written by

Logan Kane profile picture
Author and entrepreneur. My articles typically cover macroeconomic trends, portfolio strategy, value investing, and behavioral finance. I like to profit from the biases and constraints of other investors. Paywalled articles are available along with 1,000+ other authors by subscribing to Seeking Alpha Premium.You can read some more of my work for free here on my Substack.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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