"Inflation is here, and it's ugly", says VanEck's David Schassler. "But, there is something you can do about it".
Schassler, Portfolio Manager of the Inflation Allocation ETF, RAAX, at VanEck, sat down with TheStreet's Susan McGinnis, as part of our FREE webinar series: How to Play the Inflation Trade, brought to you by our partners at VanEck.
WATCH: How to Play the Inflation Trade, a FREE webinar, hosted by Susan McGinnis.
Video Highlights | How to Play the Inflation Trade
- 00:06:30 Can the Federal Reserve stop inflation?
- 00:10:40 Stocks to benefit in an inflationary environment
- 00:11:20 Inflation-hedging equities with strong yields
- 00:12:30 Key moves to inflation-proof your portfolio
- 00:21:30 What history tells investors about inflation
- 00:23:00 Inflation Allocation ETF, RAAX
- 00:30:20 Companies investing in the green transition
- 00:31:30 Why investors should consider the energy sector
Editor’s note. The webinar was recorded on October 28, 2021.
Video Transcript Below
David Schassler: When you start to think about the level of inflation as well as the categories of inflation, we think that makes the case for a transitory argument very, very difficult to make at this point. And there are a few reasons for that. So I'm just going to list off as quickly as I can the key drivers of inflation and why it's unlikely to be transitory.
In the intro, you mentioned the money supply. Yes, the money supply is up over 30% in the past year, but the level of the money supply, the increases, are still present-day well above long-term averages. That's increasing demand.
Commodity prices. Commodity prices are elevated. Elevated commodity prices work their way through the entire economy and put upward pressure on inflation.
Key Drivers of Inflation
- Money supply
- Supply chain
- Commodity prices
Schassler: Now let's talk about the Fed. The Fed's been using the most powerful tools they have in their arsenal so far, which has been talking down the narrative of inflation through this transitory campaign. If they were actually to fight inflation directly, we're talking about increasing interest rates. Right now, the debt-to-GDP ratio in the United States is very, very high.
We are a very highly leveraged economy. If you increase the cost of borrowing, it's going to have profound impacts on the economy, and it's likely to force a recession. So we think that the Fed is in a sense stuck in the sense of they are dealing with an economy that we still believe is fragile, growth is still high but falling, inflation stubbornly high and rising, a consumer that's becoming warier about the future, and a situation where we've got so much debt on the books that if we increase interest rates, it's going to cut into growth and potentially and probably lead to a recession.
Schassler: So people think of gold as a store of value asset. And there's a lot of similarities between gold and that of Bitcoin. So the key similarity is, first off, there's a finite supply. 21 million bitcoins can be mined; after that, you cannot mine more. So there's a finite supply just like there is with gold.
The second similarity is that Bitcoin, like gold, cannot be easily counterfeited. And the third is that it's easily exchangeable. So if I want my money, I can sell gold and convert it to dollars the same with Bitcoin. So those are the key three reasons why we view gold as a store of value asset that is very similar to that of Bitcoin.
Now here's the interesting thing. Those that do not favor Bitcoin and other cryptocurrencies will say, hold on a second. It's too volatile. And a volatile asset can't be thought of as a store of value asset. And this is where I'd push back a bit.
We think that the volatility is a benefit to investors because we own a very small amount of Bitcoin or exposure. We have a very small exposure to Bitcoin. So because of the volatility, we can only own a few percent but get a big impact. So we think the volatility is a benefit.
Key Similarities Between Gold and Bitcoin
- Finite supply
- Cannot be easily counterfeit
- Easily exchangeable
Schassler: I think that there are three key takeaways. The first is that inflation is here, it's undeniably a problem, and it's unlikely to go away anytime soon.
The second takeaway is that there's good news, and you can do something about it. Go out and buy real assets. Real assets have historically performed the best during high inflationary periods of the past, the 1970s, mid-2000s, and are currently leading the market higher now.
And the third takeaway is to consider the VanEck Inflation Allocation ETF. The ticker is RAAX. It gives you exposure to those key inflation-fighting assets. It does it in a risk-managed way. And it also can dynamically adjust the different inflation regimes to help you pivot and manage inflation going forward.