Backchat: Fearing inflation, and investing against Trump

The biggest concern for investors might be recession today, but inflation could be lurking on the horizon. Plus: how to allocate in the face of Donald Trump's frantic fight for re-election?
Backchat: Fearing inflation, and investing against Trump

This column first appeared in the current (Summer 2020) issue of AsianInvestor magazine.

With interest rates across the world having been slashed to record lows, the spectre of inflation is not one that is giving many people pause right now.

That’s understandable; recessions are the greatest fear of governments and central banks at the moment. The worry is that there is not enough buying – masks, hand sanitisers and alcohol aside – and too much unemployment, not any danger of spiraling prices.

But that might not be the case forever. As usual, central banks have begun turning to the quantitative easing pump to keep liquidity flowing in the system, and that has kept assets – particularly equities – at arguably artificially high levels. More liquidity will also likely be needed to help mop up all the extra debt governments will have to issue to pay for stimulus packages and furloughing schemes to prevent unemployment from spiking.

But this also means a lot more money sloshing around the world. At some point, perhaps next year, possibly in 2022, it could start feeding into the price of products. Then there is the gradual unwinding of globalisation, at least in some areas. The shutdown of the Chinese economy in February and March revealed just how much global industries depended on the country.

Attempts to retrench at least some of these supply chains will cost money, both in terms of the shift and higher costs in whatever country the production moves to. And that would likely feed into inflation.

Is inflation guaranteed? No. But then again, nobody was expecting the coronavirus either. And the whole concept of QE is still new; it worked for the global financial crisis of 2008 but there is no guarantee it won’t re-emerge this time around. Some economists think inflation isn’t just inevitable but needed, to help erode the cost of paying for the huge debt burdens of the world, similar to post World War 2.

So, while investors don’t need to worry about inflation here and now, they should consider paying it some mind as 2021 nears. Inflation never truly dies; it just sometimes rests, uneasily.

US president Donald Trump

“[Donald] Trump doesn’t know that antibiotics target bacteria not viruses. Covid-19 is a virus. Trump is an idiot. He is a dangerous idiot”

Philosopher and author AC Grayling was not very impressed by the US president’s claim on April 10 that antibiotics could no longer keep pace with the spread of Covid-19.


The presidency of Donald Trump will likely be studied by increasingly incredulous school children for generations to come. “How was he able to get away with doing so many blatantly stupid things?” many will no doubt ask.

For most of his term in office the president’s attention-seeking antics and self-interested decision-making was more of an investment sideshow at a time the US economy remained healthy. But the advent of the coronavirus has exposed how damaging incompetent leadership and willful irresponsibility can be.

He doesn’t just ignore medical guidelines such as testing, mask-wearing and social distancing; he scorns their effectiveness. Reminder: 120,000 Americans have died of coronavirus, and cases were spiking up once more in the US as AsianInvestor went to press at the end of June.

Investors need to consider how much damage Trump can do next as he casts around for a way to be re-elected in November. Ignoring the impact of the coronavirus appears likely, in an irresponsible attempt to pretend things are getting back to normal. That makes for a tricky period to invest. The massive stock gains of April and May appear impossible to sustain.

Assuming a hard correction is coming, investors would do well to consider which stocks have recovered and deserve to be sold or even shorted. And investments in home entertainment providers (think Netflix, game consoles) and healthcare equipment remain sensible choices; Covid-19 isn’t going anywhere soon.

For the longer term it might also be worth putting some money to work into publishing and entertainment companies. When Covid-19 does finally subside, there will be an onslaught of (more) books, television series and movies focusing on the farcical government of Donald Trump.

History students of the future will have plenty of ways to learn about the incompetence of this administration – even if they struggle to understand it.  

¬ Haymarket Media Limited. All rights reserved.