Not a student of geopolitical stuff but if what I follow correctly, this event unfolding in Iran is turning out to be a supply shock for production price index. And it is almost a writing on the wall how it will cause a “transitory” inflation before it becomes permanent again.
Want to ask fellow pursuant of personal finance hygienists, what’s your plan?
I have a tech heavy portfolio with 80% in QQQ: my read is once inflation starts to stick and the earnings start to show some downsides, stocks will get hammered if this keeps going up sooner or later, AI bubble may pop, inflation could easily reach 4-5% again and Fed will be stuck.
I don’t see anywinner of asset classes here to hide behind to. At the same time, it’s also almost hopeless to sit in cash when inflation might be surging.
Another inflation spike on the horizon?
byu/AccurateMaterial3372 inpersonalfinance
Posted by AccurateMaterial3372
3 Comments
My plan is to stick with current investment strategy, because most of my equities are in retirement accounts and invested for the long term.
I’m a passive investor though; I don’t try to time the market.
If inflation sticks, tech-heavy portfolios could face pressure, but at the same time markets usually price in expectations faster than we anticipate. Hard to position perfectly for this.
I’m only a hobbyist geopolitical watcher and I don’t have a crystal ball but here’s what I think is going to happen and my plan.
First off, I don’t think that we’ve seen the worst of the inflation from this war yet. Oil tankers are slow and the last of the oil coming from the Strait of Hormuz is dropping off it’s oil this week. That’s when the real fun starts and I think that basically everything is going to go up in price from here. Fuel, electricity, food, all of it. And I think that those are going to keep rising until the bottom 20% of the world just can’t afford those things. Then I think that those prices are going to stay elevated until the wars over. The market is probably going to have a rallying day when the war ends but I don’t know how long that is going to last. When the strait finally does open (and hope to whatever god you believe in that they don’t charge a Yuan fee to go through it) it’s going to take more than a month for ships that start going through it to deliver their oil places. Then prices might start to come down. You also have all of the oil infrastructure that has to be repaired from the war. Qatar says that it could take 5 years to repair just their infrastructure. On top of all of that 20% of the world fertilizer goes through the Strait so we’re probably going to have elevated food costs into next year. To bring this back home a bit rising energy costs are going to raise AI costs. That might make the bubble pop faster. The words recession and depression get thrown around when you start to talk about how there is a real chance that a large number of people just won’t be able to afford the higher prices that this war is going to bring.
I don’t know what’s going to happen but I feel like this is going to be one of those make it or break it moments that happens every 5-10 years. I’m preparing for like a 7/10 worst outcome. I’ve lowered my positions in Nvidia and VOO to triple my emergency fund, and I’ll probably revisit it in mid June before Q2 ends to see which way the wind is blowing. My only other position is in VGK and I’m holding it for now but I’ll also revisit it in June. I’m fine with holding an excessive amount of cash on hand. Berkshire Hathaway has been sitting on $350+ Billion for a while now and they don’t seem too concerned.