Are Markets Too Complacent About Inflation?
March 5, 2018
Signs of inflation are starting to appear, according to U.S. News & World Report, presenting both risk and opportunity for investors. Santiago Ulloa, founder and managing partner at WE Family Offices, spoke to U.S. News & World Report and shared his concern that the markets are too complacent about inflation.
Nearly 10 years after the crisis, global economic growth finally is taking off, though inflation remains low. That’s led to the impression that inflation won’t be a problem, some market watchers tell the publication. But that may be changing, and many investors aren’t prepared for inflation’s inevitable return.
“I think everyone is too relaxed, everything is too good to be true,” Ulloa says. “When you look at valuations in the equity markets, we don’t feel comfortable. Probably the equity markets will go up for the next few months, but we have been reducing exposure into equities.”
While the article is clear to point out that the rampant inflation of the 1970’s and 1980’s is not likely to occur, investors do need to be aware that even small increases can eat away at returns. Growth investors need to be concerned about inflation dampening earnings and profits. Companies may pay higher prices that can’t always be passed along to consumers, hence earnings shrink. Income investors need investments that won’t be eroded by higher prices.
Ulloa began voicing his concerns about inflation over six months ago in an article in Forbes. “Even though a vast majority of economists do not foresee a probability of hyperinflation, a period of accelerating even moderate inflation can present significant headwinds to investors’ capital preservation goals and cash needs in a low-return environment,” he wrote. “It is clearly important to consider how to invest in protecting oneself during a period when inflation is ascendant.”
To learn more, see the full U.S. News & World Report article here.