Real gross domestic product (GDP) increased 2.0% on an annual basis in the third quarter. Stagflation should now be a risk on investors’ minds, said Peter Berezin, chief global strategist at BCA Research.
“I wouldn’t bet on it being as bad as [the 1970s]. I think the Fed would try to cool down the economy by raising rates before we got to double-digit inflation. But having said that, I think the risk to inflation is on the upside and I think inflation will probably follow two steps up, one step down trajectory of higher highs, higher low. Right now, we’re probably at the top of those two steps,” Berezin told David Lin, anchor for Kitco News. “The next step for inflation will be to the downside because a lot of the inflation that we see today is concentrated in durable goods.”
Berezin noted that durable goods are the one area of the CPI index that usually falls over time, so it is not a source of sustained inflation.
“To get inflation to stay up, you need rapid wage growth and the labor market is certainly heating up,” he said.
To hedge against inflation, Berezin said that hard financial assets should be considered.
“Bitcoin is a risky hedge against inflation. I think there are safer hedges, and it’s not just gold. I think property, real estate in general, is a good hedge. If you think about what asset classes did best in the 1970s, it was farmland. So, go buy yourself a little farm, and if you’re worried about stagflation, you’ll be able to hedge that risk to some extent” he said.
On monetary policy, Berezin said that among the large central banks, the U.S. Federal Reserve is likely to lift rates first.
“Amongst the largest central banks, the Fed will probably move first to raise rates, most likely late next year. Even if the Fed raises rates, it’s not going to do it very quickly,” he said.
For Berezin’s preferred stock market sectors, watch the video above.
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