U.S. Markets closed
  • S&P 500

    4,432.99
    -40.76 (-0.91%)
     
  • Dow 30

    34,584.88
    -166.44 (-0.48%)
     
  • Nasdaq

    15,043.97
    -137.96 (-0.91%)
     
  • Russell 2000

    2,236.87
    +3.96 (+0.18%)
     
  • Crude Oil

    71.96
    -0.65 (-0.90%)
     
  • Gold

    1,753.90
    -2.80 (-0.16%)
     
  • Silver

    22.42
    -0.33 (-1.44%)
     
  • EUR/USD

    1.1732
    -0.0040 (-0.3402%)
     
  • 10-Yr Bond

    1.3700
    +0.0390 (+2.93%)
     
  • Vix

    20.81
    +2.12 (+11.34%)
     
  • GBP/USD

    1.3737
    -0.0059 (-0.4286%)
     
  • USD/JPY

    109.8950
    +0.1770 (+0.1613%)
     
  • BTC-USD

    48,405.83
    +1,093.12 (+2.31%)
     
  • CMC Crypto 200

    1,193.48
    -32.05 (-2.62%)
     
  • FTSE 100

    6,963.64
    -63.84 (-0.91%)
     
  • Nikkei 225

    30,500.05
    +176.71 (+0.58%)
     
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

The markets are not pricing elevated inflation: Research Affiliates CEO

In this article:
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

Chris Brightman, Chief Executive Officer & Chief Investment Officer at Research Affiliates, joins Yahoo Finance to discuss rising inflation and ways investors can approach their portfolio in the following months.

Video Transcript

KRISTIN MYERS: Let's continue this market conversation. I want to bring in Chris Brightman. He's the Chief Executive Officer and Chief Investment Officer at Research Affiliates. Chris, let's first talk about inflation. You were mentioning that in your notes. Now, we keep hearing that inflationary moves and pressures are going to be transitory. But you highlight elevated risk of inflation shock. Tell us the shocks that investors can expect coming down the pike.

CHRIS BRIGHTMAN: Yeah. Well, the Fed keeps telling us that inflation is going to be transitory. And that's, of course, the right thing for them to say because expectations are key. And they want to manage those expectations. They wouldn't say anything else. I think investors ought to look at the long-term drivers of inflation.

And essentially, it's money printing to try to boost the economy beyond its potential. Another way to think of it is just fiscal. If the US Treasury continues to wire transfer money into people's bank accounts, and the source of that money is issuing debt that's purchased by the Fed, there's a limit to how much we can do that. Disaster relief? Sure. Long-term solution to problems like inequality and climate change? That's inflationary.

And so I think we need to keep an eye on what's going on in Washington. I think the risks are certainly elevated. As millennials express their political opinions and gain political power, we're going to see a lot of pressure. And one of the nice things is buying inflation protection these days is extraordinarily cheap. The markets are not pricing elevated inflation.

ALEXIS CHRISTOFOROUS: So, Chris, I'm wondering what your thoughts are when it comes to investors wanting to insulate their portfolio as best they can from rising inflation. Some people are using the traditional gold, others are using Bitcoin. What are you telling clients?

CHRIS BRIGHTMAN: Well, if people want to speculate on Bitcoin, that's certainly their prerogative. I don't really think of it as an investment, much like gold. The problem with both gold and Bitcoin as inflation hedges is they're just extraordinarily volatile. Bitcoin often plummets in value as inflation is rising-- that certainly doesn't sound like an inflation hedge.

In fact, some people now are claiming it's a deflation hedge. I just think of it as speculating on cryptocurrencies, which is fine if you understand the risks. I think if you want to protect your portfolio, your long-term wealth, from inflation, the best thing to do is to move into real assets. They retain their value regardless of the value of a currency.

And there are several opportunities there from REITs, and commodities, and tips. We don't really like tips because you're locking in negative real interest rates. So you probably will get your inflation protection with tips, but you won't get any investment return. Speaking of the pricing of bonds and interest rates, we've got the 10-year Treasury with a nominal rate below 1.2%.

This is just an extraordinary opportunity to borrow at very low interest rates-- negative real interest rates of about another 1.2%. If you were to borrow money long-term fixed rate and invest that in real assets, there you have some really powerful inflation protection.

KRISTIN MYERS: You know, Chris, we've talked to a lot of folks who have really pointed out investor anxiety right now. We've seen some economic data disappoint. On the other side, however, we have inflation-- a real estate market that is running incredibly hot. What are you thinking about in terms of the short-term? Where should investors really be thinking about-- how should they be really be approaching their portfolios just over the course of the next six months?

CHRIS BRIGHTMAN: I think one wonderful opportunity in the near-term, as well as providing a measure of long-term inflation protection, is emerging markets-- particularly emerging market value stocks, emerging market resource stocks. These are just exceptionally cheap. And the opportunity to buy when everybody's afraid of what's going on is now.

This plague, this coronavirus is going to be-- we're going to get that under control. Markets are forward pricing. There's going to be this wonderful opportunity to participate in the reflation trade, the economic-- we see recovery in the United States. Emerging markets are still a ways off. So you have the opportunity to get in at very depressed prices before all of these markets recover.

KRISTIN MYERS: All right, we'll have to leave that there. Chris Brightman, Chief Executive Officer and Chief Investment Officer at Research Affiliates, thanks so much for joining us.