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Inflation And Stagflation: How To Position Your Portfolio

Mar. 02, 2021 12:47 AM ETAMJ, AMLP, BNO, BTC-USD, DBC, GLD, IAU, SPY, TLT, TOL, TORIX, USL, USO, VTIP, WY6 Comments
Craig Blanchfield, CFA profile picture
Craig Blanchfield, CFA


  • With ongoing and significant monetary and fiscal support, deflation is likely off the table at this point.
  • If the successes of the rollout of the vaccines and fiscal stimulus are not adequate, the employment situation could stagnate.
  • High asset, commodity, and ultimately consumer goods and services prices combined with stagnant employment could lead to inflation or even stagflation.

With the rollout of the vaccines, declining coronavirus case numbers, and optimism about a full reopening of the economy, the path to sustainable economic growth is becoming clearer. Just a year ago, the level of uncertainty around the virus and shutdowns not only sent markets into a tailspin, but it made the outlook around growth, inflation, deflation, and stagflation quite cloudy.

At this point, it looks like we will at least avoid deflation. A commitment by the Federal Reserve to accommodative monetary policy and the prospect of more, and ongoing, fiscal stimulus, indicate that asset prices will receive significant support for the foreseeable future.

Unfortunately, rising asset and commodity prices increase our vulnerability to the prospect of stagflation, although that threat seems fairly muted at this time. While asset and commodity prices receive support and climb, a faltering employment picture could derail overall economic growth, leading to the stagflation morass of higher prices, slow, stagnant growth, and less than full employment.

The employment picture is dependent on the ability of businesses to keep employees on the payroll even as they remain shuttered or operating at less than full capacity. It is a race against the clock for when the vaccines can be rolled out fully and lockdown measures can be lifted. If these two critical actions can be taken soon, in conjunction with adequate fiscal stimulus, then our economy should not only avoid stagflation, but possibly enter a period of higher than historical trend growth.

Questions that have received less attention in recent months due to the pandemic and political environment concern the relations between the U.S. and China. Will the phase one trade deal remain intact under the Biden administration? Will subsequent phases be negotiated and implemented as was originally the plan prior to the pandemic? These are questions that do not have

This article was written by

Craig Blanchfield, CFA profile picture
As a professional portfolio manager and investment analyst, I advise clients on all aspects of investment strategy, asset allocation, and investment selection. With experience at both wire houses and RIAs, I have worked extensively with high net worth individuals, successful families, and non-profit institutions. My focus has always been to educate clients on the benefit of maintaining a long-term view that is goal-oriented, and insulated from the day-to-day noise. I believe that investors who base portfolio construction on a durable strategy, while avoiding tactical moves, are best served and will realize a more favorable investment experience. In addition to my professional experience, I have also earned an MS in finance, BA in economics, and hold the CFA designation. The opinions expressed here are my own and not that of my employer.

Analyst’s Disclosure: I am/we are long IAU VTIP TLT AMLP. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (6)

I think gold may be seen as an increadable bargain considering how much the dollar will sink relative to other currencies.
Craig Blanchfield, CFA profile picture
@ababich1 You may be right. I will continue to hold gold for the time being as monetary and fiscal policy continue to expand. Thank you for your comment. Best wishes.
Interesting take. I don't agree with you about real estate being a good investment. Interest rates (mortgage) seem destined to go up, and as rates rise, real estate value falls, or at least stagnates. However, if this does indeed happen, in 2-3 years, real estate could be an incredible bargain.
Craig Blanchfield, CFA profile picture
@webchow It certainly matters what type of real estate as well. While I would be hesitant to touch office space, I find residential, multi-family, and data centers interesting right now. I understand that rising rates can be a headwind, especially within residential, but with high demand and short supply in many markets, I would expect the impact of small rate changes on market activity to be small. Thank you for your feedback. Best wishes.
Fischel profile picture
My thoughts on future inflation vs deflation, are that unemployment benefits from federal government are bound to eventually stop, which could prove deflationary, and we also see the $15 minimum wage does not seem to have political support, so some strong deflationary elements there.
Craig Blanchfield, CFA profile picture
@Fischel Both valid points. Ideally economic growth will rebound to a level that will mitigate those effects through improved employment and wage growth over time. Time will tell, but I do think we should/will avoid deflation if possible. Thank you for your comments. Best wishes.
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