Inflation is closing in

Published: Tue 07 June 2022
Updated: Tue 07 June 2022
By steve

In markets.

Tuesday 7, June 2022

How to play the long-run inflation game

You’ve heard me talk a lot about how inflation is going to persist, for a lot longer than Janet Yellen foresaw. The question is, how can a retail investor take advantage of this?

I’ve been reading some research from SOM Macro Strategies, which gives some suggestions for institutional investors.

For retail, it’s more difficult. Some possibilities might be:

  • short long-dated treasury futures (gilts, BTP etc.),

  • go short longer-dated eurodollar futures, or buy put spreads on them,

  • buy integrated oil cos (BP, XOM, etc.), maybe hedging the equity risk with SPX futures,

  • buy GBP.EUR (maaaybe),

  • buy two-year out SPX dividend futures.

To be honest, these are not that easy for a retail investor to take advantage of, but they are theoretically possible. This is not advice, and I would not even contemplate utilizing any of these strategies without doing a lot more research, but at least its a place to start looking.

The easy trades may already have all the inflation future priced in. A broad-based commodity futures ETF, such as $COMT might already have all this stuff priced in. Some commodities directly linked to the US consumer/construction sector have already crashed in price. Lumber is one of these, which has had a 100% retracement.

I’ll probably write a bit more about each of these strategies in the coming days. I’ve been too busy writing some code this evening to have the energy now.

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Wrap

This was much the same as yesterday. Equities advanced, as did most commodities, bonds and forex marked time. Bitcoin was down a tiny bit, but given its volatility, it was essentially flat at $31.3K.

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