The return of inflation

In February 2020, I wondered about the impact of low interest rates on the long term. A month later, I did the same with the COVID. Among the common conclusions of these two articles was the return of inflation. It can be said that it did not take long...

Not only is the recovery rapid, but above all it is based on a massive injection of liquidity from the Treasury and the government, not only past and present, but still to come. In addition, consumption is taking off again in force, as vaccination progresses. A strong economic recovery is predicted in the near future in most countries. However, production is still running at a slow pace almost everywhere. It will therefore take time to restart the entire economic apparatus and be able to meet this very significant demand. All this does not bode well for prices.

Rising inflation is a direct threat to interest rates. If they rise, which is more likely, it is bad for holders of bonds and growth stocks, especially those with high debt. There are many of them at the moment... Conversely, it is good for holders of well-managed small-cap value stocks and, of course, for holders of gold. You can find more information in my book to know how to position yourself well in this context.

Personally, I would view this return to a certain form of historical normality quite favorably. The easy money policy certainly encourages business creation, but in excess, over time, it mainly exacerbates economic mediocrity. Today, many businesses are chimeras, surviving solely on the money lent to them and not on the money they create.

Value investing may well return to the forefront in the future.