Bunfight

Two-way, two-way. After an up and down week, in which inflation data singed the tape, bread rolls continue to be lobbed by suited and booted economists who appear poles apart on the near-term outlook. Some suggest inflation is only going to get hotter pointing to further upward pressure from used cars and owners’ equivalent rent, the latter a measure that is only just getting going due to the lag in which it is stuffed into the calculations. Strikes, meanwhile, are afoot and wage pressures continue to build as the quit rate soars. And yet others reckon leading inflationary indicators are pointing down, not up. As such, pricing pressures are likely to ease significantly into 2022. Those in the latter jacuzzi jab a finger at slowing growth, falling shipping costs as supply chains clear, and a consumer that has started to get bored with buying stuff just as inventories have been rebuilt. Bottom line, headline CPI could be heading to 1% next year. What a 1% inflation print does for central bank policy in the shadow of a steaming pile of record-sized debt is one for the experts, but it makes for a lot of pen-sucking in year-ahead asset allocation meetings. What is happening, beyond doubt, is the economy continues to surge and Covid cases continue to fall which should continue to support a handoff in the real economy. “With almost all major markets lifting restrictions, we have seen a continued reopening of the global economy” so said Brookfield Asset Management’s top boss Bruce Flatt on a recent call. This is a broad based, life-in-the-real-world handoff that is likely to benefit lowly-valued stocks that are geared into ongoing re-opening, from hotels, to theme parks to restaurants. And those companies like US Foods and Aramark that supply the front line. Other companies, like modular space operator WillScot, are more nuanced, more bottom-up driven. As those who attended the recent bulled up investor day know only too well. Bottom line, whilst the macro picture remains something of an old-fashioned bun fight, those who chose to run concentrated, high conviction portfolios – as opposed to buying the whole market – remain spoilt for choice.