In our recent newsletter to clients we re-highlighted the importance of managing our investment portfolios with inflation in mind. Ensuring the resilience of our hard-earned savings demands a diversified portfolio that includes commodities, particularly oil or gold. US investors have been woefully unprepared for inflation with a historically significant under allocation to commodities…not us. We first highlighted this in the closing of our November 2020 letter and nearly every subsequent letter since.
With recent CNBC headlines such as: “Costco Selling as much as $200 million dollars in gold bars monthly,” the public is beginning to take notice also.
Statistically speaking there is no benefit to looking at the present participle to infer a trend in inflation. In other words, the economists and politicians say inflation is ‘coming down,’ but it turns out that this is not predictive of the future, according to Dan Rasmussen of Verdad Capital.
I wanted to share an article by Verdad Capital which was quite timely given my emphasis lately. I have included a brief summary of the article below. If you are interested in reading the full article, I highly recommend signing up for Verdad’s excellent research..
"Inflation Revisited: Asset Class Performance During Recent Inflation Spike" by Chris Satterthwaite highlights the performance of various asset classes amidst the recent inflation surge. Three years ago, Verdad Capital (and Pilot Wealth Management) emphasized commodities and gold as top performers during inflationary periods, with 10-year US Treasuries performing poorly. Since then inflation has spiked from 1.44% to 6.48% and subsequently declined to 3.72% by April 2024.
The article reexamines asset performance based on different inflation indicators, noting consistent outperformance by oil and gold, followed by equities. The underperformance of 10-year Treasuries emphasizes the limitations of traditional 60/40 portfolio diversification during inflation. Consequently, a portfolio diversified with commodities (especially oil or gold) in addition to treasuries is vitally important to preserve the purchasing power of our hard earned savings.
Surely inflation has been and will continue to be sticky given the economic, social and political forces at work over the long-term. However, inflationary environments can be quite volatile with dramatic swings over the course of a few months and years, just as we have seen recently. We will continue to look ahead, way out on the horizon, to ensure you are prepared for sunny days ahead or the inevitable storm. Be rest assured your portfolio is positioned in such a manner that we can ensure your savings is there when you need it.