During the early-to-mid 2000s, investors experienced a brush with inflation. They got off easy that time around. Before that, it was the 1970s when investors experienced a more serious era of inflation.
Many investors were not prepared, unsure of how to protect their portfolio during these uncertain times. But, are investors any more prepared today?
In the excerpt above, David Schassler, Portfolio Manager of the Inflation Allocation ETF, RAAX, at VanEck takes a look at the previous cycles, the increase in money supply, and what that means for supply disruptions.
TheStreet assembled an all-star cast for a FREE webinar, WATCH: How to Play the Inflation Trade, hosted by Susan McGinnis.
Editor’s note. The webinar was recorded on October 28, 2021.
- The 1940s
- The 1970s
Video Transcript Below
David Schassler: If you go back and look at the previous cycle, so go back and look at the 1970s. We had a massive increase in the money supply at the same time that we were very reliant on foreign imports of oil. Which, again, increases the money supply, puts it's a big spotlight on where you're vulnerable. Then you had an increase, a big surge in the price of oil, relative to the US dollar.
At the same time, we abandoned the gold standard, which allowed us to really blow out our money supply, which then led to inflation. Go back to the 1940s, you saw something similar. To finance World War II, we came out, increased the money supply, lowered interest rates. We had another commodity boom that led to an inflationary spiral.
2008. We had a big increase in the money supply. There wasn't an increase in CPI, but there was asset price inflation because that's where the money went. So if you look at 2008, real estate went up. Stocks went up. Bonds went up. So it's where the money is going.
And now we fast forward to 2020, and we've got a big increase in the money supply. We've got wealth redistribution. We've got a transition to clean energy. So you could see these structural changes that are leading to this, but it's really baked on this idea that they increase the money supply, which leads to the end result, which is a mismatch in supply and demand where you get a surge in demand. And then it shows us our vulnerabilities and supply.
Schassler: And every time it's a little bit different, but the origination starts with the money supply. That's why I want to keep harping on that. Because a lot of times the narrative is always, well, there's just these supply disruptions, and once we resolve these, we're going to be fine. But we started talking about how quickly the supply disruptions were going to be resolved a year ago. It was only going to be a few months, but that didn't happen.
And now, every article you read and every CEO you speak is constantly talking about these disruptions. But the root of that is the massive increase in demand.
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
Schassler says there are steps investors should take now. Watch his extended interview below.