After years and years practically disappeared , inflation is breaking out again and the economic world does not want to and cannot talk about anything else. The debate is crude between those who see it as something transitory after the pandemic shock and those who think that it is back to stay. Closer to the latter club is Livermore Partners’ chief investment officer David Neuhauser, who sees a “structural change” and explains in which markets he will be able to get a slice of this new situation.
In order not to waste time, Neuhauser summarizes in two concepts where the investment compass has to go: European stocks and raw materials . While the former will overtake the US as inflation continues, he predicts, the latter are on the verge of a “super cycle” that will last decades.
Although the high inflation figure in the US (5% year-on-year) known this Thursday represents the largest increase since 2008 (that of core inflation, 3.8% is a 28-year high, going to 1992), the markets seem have allowed themselves to be convinced by the Fed that it is a transitory phenomenon generated by the logical imbalances in supply and demand after the pandemic. Neuhauser, however, is determined that behind it there is a “structural change” of greater depth.
As the Livermore Partners economist has observed, wages are not rising as much as one might expect with GDP growth levels above 6% . Average hourly earnings in the US, which take inflation into account, were down 2.8% in May from a year earlier, according to the Bureau of Labor Statistics.
“As the prices of cars , houses and food and energy go up and it seems that economies are starting to grow, you see that the real problem is that wages are not growing as fast,” Neuhauser explains in a interview on CNBC . “So ultimately, that’s going to start pinching the consumer and, as you know, the consumer is more than 70% of the economy.”
Taking as an example the cases of McDonald’s and Chipotle, which are offering bonuses and focusing on wage growth to attract workers , Neuhauser sees clear that this trend, “ultimately, is going to increase the price of their goods and services, which which, of course, will raise prices for consumers. ”
This higher inflation, he suggests, could multiply the problems if combined with the possible reduction of the Fed’s bond purchase program. It would lead to a situation in which “extremely foamy” markets would be “revalued” . And it is at that point, making “numbers”, where it becomes obvious that we have to look for other markets. Neuhauser fund is now focused largely on commodities, banks and industry under the premise precisely the much discussed new “super cycle ” of raw materials .
Betting on mining
“We have seen fewer mines being built, that oil and gas see capex (capital spending) withdrawn because banks no longer lend and ESG initiatives come to the fore at board meetings.” , describes. “I think there has been a structural change where you have not seen capital, which has been starving in the complex, and ultimately there is a dollar that seems to potentially crumble,” he adds.
This change means that raw materials are the place to be for investors in the next three to five years , argues a Neuhauser who points out that his firm is betting “on some of the smaller capitalization companies with free cash flow. or with cash flow that exist out there. ”
“A lot of it is in Europe and a lot of it is international, so I think Europe is going to overtake the US as we move forward, and that’s where most of Livermore’s capital is, in a lot of these linked European stocks. to mining, “concludes Neuhauser.