With regard to demographics, the no-inflation argument rests on what is a historically positive correlation between deflation, or disinflation, and slowing population growth. 

With regard to technology, of course that one’s easy to embrace;. innovation promotes productivity, and rising productivity is inherently deflationary.

The inflation is coming narrative, on the other hand, contends that massive fiscal injections — with the pain of covid, the continuing rise of inequality, the trend in deglobalization, and continued economic weakness offering huge political cover — will come in such enormous quantity, against a Fed that will continue to suppress borrowing rates (effectively mitigating any rising-rate headwind against inflation), that rising inflation will be virtually impossible to avoid.

As I’ve previously stated herein, 

So, then, while both narratives have serious merit, and, at this juncture there’ll be no knowing for certain, we albeit gingerly lean toward the inflation is at last on the horizon camp. 

While the risk of a major equity market collapse will remain heightened, ironically, the inflation-is-coming scenario can lend itself to somewhat bullish market conditions. 

In essence, while massive government spending in areas like infrastructure, by itself, could be construed as dollar-positive, the accompanying financial repression at the hands of the Fed is clearly dollar-negative. Which (economic growth coupled with currency debasement), by the way, is precisely what the government and the Fed have every intention of pulling off.

Therefore, beyond the election, and as we enter 2021, we may very well be adding exposures in areas such as materials and industrial equities to exploit targeted spending regimes, while managing a healthy mix of commodities and foreign equities to take advantage of what will highly likely turn out to be a protracted weak-dollar environment. 

Now, that said, while high government spending amid a zero interest rate environment makes for an intuitively bullish backdrop, it’s of course never that easy. 

A plausible bearish argument — particularly in the absence of a major equity market selloff in the meantime — might be that the threat of rising inflation, and, despite the Fed’s best efforts, rising interest rates at some end of some spectrum, would have equity valuations (having to then discount higher inflation) stretched to their proverbial breaking point. Another would involve factoring in the prospects for a continuation of the present trend in rising geopolitical tensions leading to further global economic stress and potentially severe asset market disruptions.

Bottom line; while the future will no doubt present opportunities for the experienced, thoughtful, prudent maco-focused investor, real risk will permeate the global landscape well into the foreseeable future. Thus, as we’ll look to take full advantage of whatever opportunities lie in store, we expect we’ll be maintaining an active hedging strategy all along the way…