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Investing During Stagflation 101


  • This article provides data and examples for how (and why) various assets typically perform during stagflationary environments.
  • Bonds and growth stocks tend to have the most trouble.
  • Value stocks, commodities, and real estate are typically the places to be. Some cash can also help with rebalancing.
  • Looking for a helping hand in the market? Members of Stock Waves get exclusive ideas and guidance to navigate any climate. Learn More »
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Inflation, and specifically stagflation, makes investing more challenging.

Stagflation is when inflation is high, but growth is low or negative.

Cash and bonds are obviously a rough place to be, because their yields are often below the level of inflation in

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This article was written by

Lyn Alden Schwartzer profile picture

Lyn Alden has a background in engineering and engineering management, and since 2016 has provided research with a systems engineering focus into macroeconomics, energy markets, stock opportunities, and digital assets.

She serves as the fundamental analysis contributor to the investing group Stock Waves, which seeks to find market opportunities where the fundamentals and technicals align. Features of the service: daily technical analysis, multiple videos weekly with chart analysis, fundamental analysis, 2 deep dives on specific stocks monthly, and a vibrant chatroom for discussion. Learn More.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

I am long various stocks, cash, real estate, precious metals, commodities, and bitcoin.

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Comments (210)

Guraaf profile picture
Great article. Thank you so much.

Have other readers found any interesting stock ideas to buy and sell from the author's Stock Waves service? Is it worth the price?
Smithies profile picture
Thank you, Lyn. Helpful as always
Problems I see with buying stagflation assets now are
*) prices have already run up; the time to buy them was at least nine months ago and
*) nobody really knows how long the specifics of this current situation will last.

So instead FOMO panic-buying stagflation assets that are already at all-time-highs....

...I think it's smarter to use this as an opportunity to get off the FOMO train, permanently.

Right now, I'm thinking
1) Hold the HTHG stocks that continue to grow revenues and margins, sell the ones that don't.
2) Hold the cash I have, and save what more I can, while it all comes crashing down
3) Buy up some perfectly good growth stocks at the bottom when nobody else has the cash to
4) Wait until the next cycle of tech euphoria, and...THAT'S when I'll get into whichever asset classes happen to be tanking at that time.

Ain't gonna categorically sell HTHG at all-time-lows and buy stagflation assets at all-time-highs, no thank you very much.
I was lucky to start buying oil stocks in 2020 and more deep commitment in early 2021. I am lightening my positions- which some may say is stupid. But I am very happy with where I am on those.
I am thinking a little bit along the same lines as you- but I still think there are good opportunities around some value stocks both in the US and elsewhere and I have been making real commitments to those stocks (hopefully, I am not off on my picks).
I am also buying small amounts of high risk (no revenue) stocks in the alternative energy space. Stocks who’s PE ratios were off the charts just a short time ago. I too hope these stocks are swept upward in the next euphoric phase of that sector. Some of these stocks will amount to nothing once the mext wave of euphoria passes but maybe there will be 1-2 good companies that come out of it.
@captain dola congrats! The smart investors are the ones who did the things that were obviously the right things to do, that somehow nobody else was doing at the time. I am an aspiring Smart Investor :)
@alphatraz Thanks. I don't think I am that smart just getting older and maybe have accumulated a little experience along the way. Often I just think it is all a gamble.
Augustus profile picture
Just an excellent explanation of discounted cash flow valuations and interest rate changes. Values received at more than 10yr. out begin to have no value at the higher rates.
@Augustus And geopolitics « Wars are occurring, which reduces globalization and forces duplication of resources in various ways.«
Based on your article, the place to be is OIL (EXXON) and Copper (FCX)
@CJlove4all agriculture stocks too
thumb.ai profile picture
I think the rest of the decade can be quite different. For example, commodity scarcity vs. China slowing down leads to balance, not further scarcity.

- Aside from crops like wheat and corn that are impacted by changes in climate, the current constraints on commodities look short term. Covid again in China and war with Russia. Neither were expected this year, and both will impact supply until they don't.
- Higher prices of goods and services may be driven in part by wage inflation during 2021-2022, but that doesn't mean wages will continue to grow as quickly for rest of the decade
AuCoaster profile picture

When the $6 Trillion of excess expansion is fully absorbed into higher prices, the excess inflation will end. Perhaps another 15% rise in the CPI spread over the 2-3 few years, and tapering off quickly thereafter.
thumb.ai profile picture
@AuCoaster That's an interesting idea, thanks
MongolianBeef profile picture
Too bad @Lyn Alden Schwartzer never finds the time to reply to anything even once
Illuminati Investments profile picture
@AsTheCrowFlies Probably too busy writing a master's level thesis every couple days...
MongolianBeef profile picture
@Illuminati Investments Isn't everybody?
@AsTheCrowFlies It is a free article, not a free service.
Taichi Investor profile picture
My take :

- own necessities producers / carriers with high entry barriers

- own REITs with resilient demands ( eg hospital ) rather than expensive residential and commercial properties

- hedge against all currencies with Gold and Silver
@Taichi Investor Nice thing about REITS that own expensive properties is that those that can afford them always have money even during recessions.
Inflation happens when prices Rise.
Push Button Money Supply also brings more Inflation &
Printing Money makes what's going on,
"An Economic Hat Trick"!
Run Away Inflation will be around for sometime.
AuCoaster profile picture

The Fed can end the inflation storm fairly quickly by causing a financial crisis and a severe recession. Their current talk indicates that path.

Too much money chasing limited goods and services drives prices up.
So, the Fed will take the money away, putting people out of work, and by raising rates quickly they can cripple the financial system, and thus the inflation ends in a severe recession.

Too few goods, in the present case.
AuCoaster profile picture
@Jack Reacher

Aggregate supply is currently slightly higher than it was pre-Covid.
Money supply has increased by roughly 50%, boosting effective demand.

With a huge boost in effective demand, and very little increase in the aggregate supply of goods and services, there is a gap between effective demand and available supply.
Scipio Advisors profile picture
Very well written, the first article which factors in the deflationary force of China as the world's factory into her analysis.

The explanation of the PE compression effect of higher inflation, specifically how it impacts high PE stocks, is very well put together and should be studied in greater detail by savvy value and growth investors.

Overall, a well thought-out investment article that serves as a wonderful guide for investing through the coming stagflation period.
Donald Johnson profile picture
I just reviewed several dozen charts that show that almost every recession resistant and inflation resistant stock and ETF is not bear market resistant.

That is one reason I'm not buying anything nor selling cash secured puts, which is very risky in bear markets that show no signs of bottoming out, yet.

I've sold a bunch of covered calls, but I won't sell any more until the Fed announces it rate hike decision and the markets absorb the news.
wrc.99 profile picture
Thanks Lyn for another educational article.
bazooooka profile picture
Hyper growth stocks really fall when rates head upward and that hypergrowth was all a mirage anyhow.
Illuminati Investments profile picture
@bazooooka Yeah, it was weird how all the crappy $ARKK stocks were up today. I expect them to all be down tomorrow if the Fed hikes anywhere close to half a point.
Darp Research profile picture
Thanks as always @Lyn Alden Schwartzer for your excellent articles.
James Emanuel profile picture
Much focus on the virtues of real estate during times of Stagflation but absent any mention of the real estate bubble that has been fueled by a decade and a half of cheap money.

Accordingly, this time is different.

Real estate is one of the most leveraged investment assets. Many people borrow 90% or 95% loan to value against a mortgage on the property.

Rates have been at historical lows of close to zero percent for way too long. Now comes inflationary pressure and rates are rising rapidly. An increase of half of one percent doubles the cost of borrowing when coming off a 50 basis point base rate (far more impactful than a half of one percent hike when rates are up at 6%).

Real estate, by any measure (versus average incomes, on a rental yield basis, etc) is stretched. It has, in recent years, become something of a Ponzi scheme because each wave of new investors fuels the gains of the last rather than valuations being based on economic fundamentals. We have been living in the realms of greater fool theory.

This is all well and good while buyers keep jumping in and propping it up. But when the music stops it won't be pretty. Inflation in a low growth environment with rapidly rising rates will stop the music.

Expect foreclosures and repossessions. Expect a mass exodus from real estate and in a market that is not particularly liquid on the way down, when it goes there's a landslide!

Personally, I wouldn't touch real estate at this time. Food for thought.
@James Emanuel Thank you James for sharing your cogent thoughts which I find illuminating which seem to jibe with John Templeton's quote, " Buy at the point of maximum pessimism ". Real estate seems to be at a point of maximum optimism :)
@James Emanuel very true. Most people do not seem to realize, "home" values are not based on fundamentals, but on "affordability" (cost of leverage to earnings to own a home). As the cost of housing (lower int rates) goes down, the prices of homes increase...and the Fed has driven the cost (mortgage rates) of homes to a artificially low never to be seen again, so housing stock values have exploded( temporarily)...as a result. I find it interesting, that a number of homes are also being bought with all cash buyers (by passing the need for appraisal's...which might have slowed down the massive increase in values).

These values will re-set with new mortgage's rates...and with inflation running rampant in repair, replacement costs (ie HVAC, appliances, roof's, etc) and improvements, maybe the tipping point for some home owners struggling to make ends meet...especially those on fixed incomes or loss of incomes.
@James Emanuel I've been thinking the same thing. But in the context of this article, I think REITs will likely be a good investment during stagflation. At some point. That point still being in the future.
Very interesting article. Forgive my ignorance but how this calculated?
"In other words, we would be willing to pay a price/FCF ratio of roughly 11x, if we want 12% annualized returns on these cash flows". Where 12% of annualized returns came from? Was it authors assumed returned?
@pawel_81 yes, it was an assumed return an investor, for illustrative purposes. As an investor, I personally seek a 10-12% return on my investments for equities. This is rather high given alternative ST rates (note pref stock ~5-6%)...but I am factoring in over ~5-10yrs and anything can happen over that long a horizon.
Engineer Investor profile picture
@pawel_81 It's just a value used, 12% and 8%, to show the sensitivity of company valuation compared to different growth expectations for that company. Essentially, the higher the expected the growth, the more sensitve they are to "rate changes".
how do midstream compnies
do doring stagflation ? tanks
So how do we make money off this bullshit economy? Never was a crisis.
@MmoneyFHitches My Stagfolio is up 2.51 % today, but the real deal is
I get over 2 and a 1/4 percent cash every 90 days, of my basis, and just qualified for a lot of it for mid May, got to take a little out to help relatives on only Social Security, but most just buys more income.
Best Luck
Groovy Jeff profile picture
@MmoneyFHitches I’m making money with the Stock Waves service. In 4 months I have made 5x what the service cost.
Why do so many people think stocks are a good inflation hedge; stocks did not do well in 1970s during high inflation. Some sectors may do well, as Lynn specifies, but may not a good time for S&P index fund.
Austin Craig profile picture
@TagHoyer What is your alternative? cash?

Some metals but hard to move them?
bluescorpion0 profile picture
@TagHoyer did they not do well during the 70s or when the fed jacked rates to 20% in the early 80s? What Im trying to understand is if they actually did very well and then collapsed when the Fed liquidated equities with 20% interest rates.
@TagHoyer Maybe we will all become a little bit poorer and consequently equally rich as before ;-) ! It's all relative.
seems reits and commodities already had run up and now trending down
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