Adrian Day: Negative Real Rates Means More Inflation Ahead
Tom welcomes Adrian Day back to the show. They discuss the lag in economic consequences as a result of rate hikes and changes in monetary policy.
Adrian notes that the impacts vary depending on market sector, and that the overall economic effect has yet to be felt.
He explains that during lockdowns, spending patterns changed, and coming out of them, the spending habits changed again, with savings rates collapsing back to pre-COVID levels and credit card balances rising.
Consumers are feeling the pinch, and more debt defaults and corporate bankruptcies are likely to come.
Adrian then discusses three areas where they are finding yield in this environment. He is not a major bull on the price of oil, but does not expect a major decline either.
He also notes that due to a slowing global economy, some ESG targets may not be achievable for a while. He is looking for opportunity in copper and lithium companies.
He believes that the market is underestimating Fed Chair Jerome Powell’s will to cause a recession, and that the Fed is willing to see markets decline significantly.
As such, he feels that the markets are being overly optimistic in assuming that rates will decline by the end of the year.
In his opinion, central banks have entered a complex situation of their own making, and cannot kill inflation without causing a recession and further problems in the financial system.
He believes that gold is far and away the best asset class to hold during periods of stagflation.
Timestamp References:
0:00 – Introduction
0:45 – Monetary Policy Lag
11:12 – Bank Failures
14:15 – Bonds & Stock Balancing
16:25 – Finding Yield 27:32 – Global Economic Outlook
32:10 – Electrification
35:58 – Geographic Diversification
39:17 – Gold Price & Inflation
48:55 – Bailouts & Moral Hazard
51:57 – Feds Path Forward
56:43 – Commodity Countries
58:10 – Consensus Thoughts
1:00:40 – Wrap Up
Talking Points From This Week’s Episode
– The economic effects of rate hikes and changes in monetary policy are still yet to be seen, but consumer spending patterns have already changed drastically.
– Adrian Day is looking for yield opportunities in copper and lithium companies.
– He believes gold is the best asset class to hold during periods of stagflation.
– The market is underestimating Jerome Powell’s will to cause a recession and see equity declines.
