In Episode 363 of Hidden Forces, Demetri Kofinas speaks with investors Paulo Macro and Le Shrub about their investment ideas, frameworks, and processes for identifying investment opportunities and managing risk.

In the first hour, Demetri asks Paulo and Le Shrub about some of their respective frameworks, including the EM-ification of developed economies, the need to understand the incentives of policymakers, and how these frameworks can help inform your expectations about interest rates, inflation, credit rationing, and much more.

In the second hour, Paulo Macro and Le Shrub discuss how the contemporary strain on the international system and on American military and financial hegemony could amplify some of the budgetary and political headwinds facing developed economies in the years ahead. They discuss the conundrum facing policymakers in China, the investment opportunity in commodities, the search for a new safe asset in a world of worsening fiscal balance sheets, and what it feels like to be “financially gaslighted” during an inflationary recession where prices rise as one’s living standard declines.

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Producer & Host: Demetri Kofinas

Editor & Engineer: Stylianos Nicolaou

Follow Demetri on Twitter at @Kofinas

Episode Recorded on 05/07/2024…(read more)

LEARN ABOUT: Investing During Inflation

REVEALED: Best Investment During Inflation

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Inflationary recessions can be a challenging time for investors, as rising prices squeeze profit margins and reduce the purchasing power of consumers. However, with the right investment strategy, it is still possible to weather the storm and even come out ahead. In this article, we will discuss how to invest in an inflationary recession, using the insights of investment experts Paulo Macro and Le Shrub.

1. Diversify Your Portfolio: One of the most important principles of investing in any economic environment is diversification. In an inflationary recession, it is especially crucial to spread your investments across different asset classes, industries, and regions. This can help to protect your portfolio from the negative impact of rising prices in particular sectors or regions.

Paulo Macro, a seasoned investor with a focus on macroeconomic trends, emphasizes the importance of diversification in an inflationary environment. “During times of high inflation, certain industries and assets may perform better than others,” he says. “By diversifying your portfolio, you can offset potential losses in one area with gains in another.”

Le Shrub, a financial planner and investment advisor, advises investors to consider adding inflation-protected securities, such as Treasury Inflation-Protected Securities (TIPS), to their portfolio. These securities are designed to provide a hedge against inflation by adjusting the principal value of the bond in line with changes in the Consumer Price Index.

2. Invest in Real Assets: In an inflationary recession, real assets such as real estate, commodities, and infrastructure tend to perform well, as their values tend to increase along with rising prices. Paulo Macro recommends considering investments in these areas as a way to protect your portfolio from the effects of inflation.

“Real assets have a tangible value that can provide a hedge against inflation,” he explains. “Investing in real estate, for example, can provide a steady stream of income through rental payments, while the value of the property itself may appreciate over time.”

Le Shrub also suggests considering investments in commodities such as gold, silver, and oil, which tend to perform well during periods of high inflation. “Commodities are often seen as a safe haven during times of economic uncertainty,” she says. “They can provide a hedge against inflation and help to diversify your portfolio.”

3. Consider High-Quality Stocks: While inflationary recessions can be challenging for stocks, investing in high-quality companies with strong fundamentals can still be a profitable strategy. Look for companies with stable cash flows, low debt levels, and a history of dividend payments.

Paulo Macro recommends focusing on companies that have pricing power, as they are better able to pass on rising costs to consumers. “Companies with strong brands and loyal customer bases are better positioned to weather the storm of inflation,” he says. “They may be able to maintain or even increase their profit margins, despite rising prices.”

Le Shrub advises investors to look for companies with a history of consistent dividend payments. “Dividend-paying stocks can provide a steady stream of income, even during turbulent economic times,” she says. “Reinvesting dividends can help to grow your investment over the long term.”

In conclusion, investing in an inflationary recession requires a careful and strategic approach. By diversifying your portfolio, investing in real assets, and considering high-quality stocks, you can position yourself to navigate the challenges of rising prices and potentially come out ahead. By following the advice of experts like Paulo Macro and Le Shrub, you can build a resilient investment portfolio that can weather the storm of an inflationary recession.