Inflation is leading to a "structural change" and these are the markets that will benefit

After years and years practically disappeared, inflation is breaking out again and the economic world does not want to and cannot talk about anything else. The debate is crude among those who see it as something transitory after the shock pandemic and those who think it is back to stay. Closer to the latter club is Livermore Partners investment director David Neuhauser, who sees a “structural change” and explains in which markets it will be possible to get a slice of this new situation.

In order not to waste time, Neuhauser summarizes in two concepts where the inverting compass has to go: European stocks and commodities. While the former will overtake the US as inflation continues, he predicts, the latter are on the verge of a “super cycle” that will last decades.

Although the high inflation figure in the US (5% year-on-year) known this Thursday represents the largest increase since 2008 (that of core inflation, 3.8% is a 28-year high, going to 1992), the markets seem have been convinced by the Fed that it is a transitory phenomenon generated by the logical imbalances of supply and demand after the pandemic. Neuhauser, however, is determined that behind it there is a “structural change” of greater depth.

As the Livermore Partners economist has observed, wages are not increasing as much as might be expected with GDP growth levels above 6%. Median hourly earnings in the US, which take inflation into account, were down 2.8% in May from a year earlier, according to the Bureau of Labor Statistics.

“As the prices of cars, houses and food and energy go up and it seems that economies are starting to grow, you see that the real problem is that wages are not growing as fast,” Neuhauser explains in a interview in CNBC. “So ultimately, that’s going to start pinching the consumer and, as you know, the consumer is more than 70% of the economy.”

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Taking as an example the cases of McDonald’s and Chipotle, which are offering bonuses and focusing on wage growth to attract workersNeuhauser sees clear that this trend, “ultimately, will increase the price of its goods and services, which, of course, will increase prices for consumers.”

This higher inflation, he suggests, could multiply the problems if combined with the possible reduction of the Fed’s bond purchase program. It would lead to a situation where “extremely sparkling” markets would be “revalued”. And it is at that point, making “numbers”, where it becomes obvious that we have to look for other markets. Neuhauser’s fund is now heavily focused on commodities, banks, and industry precisely under the premise of the much-talked about new commodity “supercycle.”

Betting on mining

“We’ve seen fewer mines being built, that oil and gas see capex (capital spending) retreat because banks no longer lend and ESG initiatives come to the fore at board meetings.” , describes. “I think there has been a structural change where you have not seen capital, which has been starving in the complex, and ultimately there is a dollar that seems to potentially crumble,” he adds.

This shift means that commodities are the place to be for investors in the next three to five years, argues a Neuhauser who points out that in his firm they are betting “on some of the smaller capitalization companies with free cash flow or with cash flow that exist out there.”

“Much of it is in Europe and much of it is international, so I think Europe is going to overtake the US as we move forward, and that’s where most of Livermore’s capital is, in a lot of these linked European stocks to mining, “concludes Neuhauser.

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Deutsche Bank warns that this time it is different for inflation and we are not prepared

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