Blog | CB Investment Management

Allocation Resets. New Era Globalization And Long Term Inflation Risks.

My expectation is that the rate of inflation will continue to decline, but more slowly than the pace implied by where the markets signal monetary policy should be,

Dr. Raphael W. Bostic Federal Reserve Bank of Atlanta.

Four new insights signaling allocation shifts:

  • The inflation outlook is shifting. CPI  may even rise again into next year.
  • The valuation metrics of US Equities are extremely demanding.
  • These narrow performance extremes have not been seen since 1929. 
  • Globalization capital flows are changing and international stocks are at record low valuations compared to the US.
Check out the two expert videos below.

With commodity excess supply schemes out of the way, oil and gas prices are likely to recover into 2025. So the stalling decline in Core CPI measures looks troubling for confidence that inflation will durably reach its 2% inflation target. 

Will “Outlawing Recession” lead to a long lasting inflation problem? It wouldn’t be the first time.

Global bonds lose steam with the uncomfortable reality of persistent inflation. And, remember. 2024 is an election year in more than 60 countries, which means higher government spending = higher deficits = more money printing = persistent inflation.

US shale producers completed the lowest number of wells in two years last month. That typically means one thing: Lower oil production growth.  This seems consistent with bottoming price action in oil. More importantly the outlook generally is positive according to the energy expert in the video below.

The Challenging Math Of US Equities

The US market is as narrowly concentrated as it has been since the 1929 pre depression high.

The extreme focus on Big Capitalization technology stocks is puzzling., when compared to energy stocks. 

With a $3 trillion market cap, Microsoft is twice the size of the entire energy sector in the S&P 500, which generates double Microsoft’s annual free cash flow. Investors are paying 4x for Microsoft’s cash flows relative to energy stocks. 

US market is VERY expensive compared to the rest of the world S&P 500 P/E is far above that of international stocks This is the highest level seen since 2006.

New Era Of Globalisation

Investors may be starting to think differently about relative value across global equities. The rest of the world is becoming much more independent and self reliant. Threats of sanctions and confiscation have altered perceptions of financial security. Global markets may also be offering better relative value and prospects  worth reviewing given the relative value .

Summary

The long term trend towards stagflation seems well on track. That is the consequence that Volcker warned about in 2013, and which has been broadly disregarded by current policy makers, who have different priorities. 

Current market trends remain in place, but investors need to balance these trends with the inevitable long term economic consequences. The violence of the collapse and reversal in US equities this week shows what is at stake. Investors need to balance the extreme settings and record trends in US equities with the growing forces of stagflation.

Best Practice is a matter of your Best Interest.


Education and a Commitment to Informed Consent is an Obligation.

Chris Belchamber is an IRMAA Certified Planner

Medicare’s IRMAA impacts every retirement plan. Learning how to mitigate it is available via IRMAA Certified Planners designation.

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