Now that every major Wall Street bank and brokerage firm is out there selling you inflation ideas, it is time for you to be thinking about doing the opposite. Based on my research, inflation has PEAKED or is at least peaking. Instead of looking at protecting your portfolio against inflation, I’d suggest you begin to look for ideas to profit from a dis-inflationary environment. The rate-of-change on the forward outlook on both U.S. inflation and economic growth is LOWER not HIGHER. In my opinion, Wall Street and their legions of sales people are presenting the exact opposite of what I am seeing. Lower inflation and growth is the hallmark of a WINTER investment climate (see my writings on the FOUR SEASONS INVESTMENT approach). This fundamental data is now being corroborated by what we are seeing in securities prices. Cyclical and other economically sensitive holdings (specifically garbage story stocks with little to no cashflows) should be benched and interest rate sensitive securities like bonds, utilities, REITS, and consumer staples are ideas you should be looking to build positions in.

There are times in the business cycle to be offensive and there are times to be defensive. Every cycle does not perform the same, so there is some nuance here. This is why price trend following is so important. Trend following definitely helps to stay on the right side of your fundamental ideas. Quit thinking in “terms” like long-term or short-term. These are undefinable, sales language used to market to individual investors. The most successful investors that I know think in terms of cycles and rate-of-change mathematics.

The idea that the FED is embarking on an interest rate hiking spree is, well, a very-low probability. We are heading into an inflation and economic slowdown and the idea that the FED is going to RAISE rates into that fundamental backdrop would be very damaging to both the economy and risk assets. I would not be surprised if the FED does try to raise rates at the next FOMC meeting in January or in March, but if the FED does that, markets will most likely respond quite negatively and it is more probable that they embark on a rate CUTTING spree. The irony in all of this is that IF the FED looks to raise interest rates, THEN there is a high probability that the long-end of the yield curve would actually see interest rates FALL. Go figure.

Have a blessed day!

P. Franklin, Jr., CEO

Franklin Trend Investment Management, LLC