If we are in an extended period of high inflation, then it makes sense to invest in those areas of the market that have traditionally performed well during times of high inflation. Our Inflation Opportunities and Strategic Inflation ETF strategies do just that by utilizing our adaptive, multi-factor proprietary system to identify strong inflation-fighting ETFs for inclusion in the portfolio.
ECRI, the leading predictor of cycle turning points, published an article on February 23rd, 2023 on their website (www.businesscycle.com) regarding long-term cyclical inflation.
Why the 1970s clarify the Fed’s actions today
It’s important to understand that the cyclical nature of inflation is quite different from inflation’s structural characteristics.
The risks
If “mission accomplished” for the Fed in 2023 is merely a cyclical downturn in inflation, that would fall far short of securing Fed Chairman Jerome Powell’s legacy.
We’ve seen this movie before. From the 1970s to the early 1980s, inflation cycled from less than 3% to nearly 15%. Around each recession, inflation would cycle down but, with the cycle lows becoming progressively higher, inflation averaged about 7% (chart).
A cautionary tale
Every time inflation cycled down, there was intense political pressure from Congress and the White House on Fed Chairman Arthur Burns to back off. AFL-CIO President George Meany called Burns "a national disaster," and Senator Hubert Humphrey compared him to Simon Legree, the villainous slaveowner in Uncle Tom’s Cabin. Each time, Burns gave in and backed off too soon in his fight against inflation, opening the door to a structural upshift in inflation.
By the time Fed Chairman Paul Volcker came on the scene, people were sick and tired of inflation to the point that there was no longer much pushback against sustained monetary tightening, despite recession. So, in that respect, Volcker was luckier than Burns.
Under the circumstances, it makes sense for Powell to be cautious in declaring that the Fed’s inflation fighting job is done, even as economic weakness spreads.
Last March, Senator Richard Shelby asked Powell if he was prepared to “do what it takes to get inflation under control and protect price stability.” Powell replied that he “knew Paul [Volcker]” and thought “he was one of the great public servants of the era, the greatest economic public servant,” and that he hoped “history will record the answer to your question is, ‘yes.’”
For more information, please contact us via email, phone or chat.
Optimus strategies are offered as separately managed accounts and can be accessed on multiple platforms/TAMPs. Please contact us for a complete list.
Optimus Advisory Group manages liquid tactical and strategic investment strategies that meet the needs of our clients. We use a disciplined, quantitative methodology to build and manage our portfolios.
Our goal is to provide investors with superior risk-adjusted returns over a full market cycle.
All strategies are net results after subtracting a 1.50% annualized fee.
The performance results shown include the reinvestment of dividends and other earnings. Comparison of the Optimus Advisory Group Programs to any other indices is for illustrative purposes only and the volatility of the indices used for comparison may be materially different from the volatility of the Optimus Advisory Group Programs due to varying degrees of diversification and/or other factors. Different types of investments involve varying degrees of risk and there can be no assurance that any specific investment will be profitable. Optimus Advisory Group does not make any representation that the Optimus Advisory Group Programs will or are likely to achieve returns similar to those shown in the performance results in this presentation. Optimus Advisory Group reserves the right to trade different funds within their models.
The historical S&P performance results (and those of all other indices and index funds used as proxies for indices) are provided exclusively for comparison purposes only, so as to provide general comparative information to assist an individual client or prospective client in determining whether the performance of the Optimus' portfolio meets, or continues to meet, his/her investment objective(s). It should not be assumed that any Optimus portfolio holdings will correspond directly to any such comparative index.
Different types of investments and/or investment strategies involve varying levels of risk, and there can be no assurance that any specific investment or investment strategy (including the investment strategies devised or undertaken by Optimus Advisory Group) will be profitable for a client's or prospective client's portfolio. All performance results have been compiled solely by Optimus Advisory Group and have not been independently verified.
The Optimus performance results do not reflect the impact of taxes.
Advisory Services offered through Optimus Advisory Group, a Registered Investment Advisor.
