Veteran investor Jack Ablin is out with a new inflation call.
He believes the U.S. is inching closer to an inflationary environment not seen since 1980 due to two chief factors: Federal Reserve policy and the trade war.
“We’re starting to see some of it. For example, wage growth [is] trending towards 3 percent, [higher] oil prices and so forth,” the chief investment officer at Cresset Wealth Advisors said Tuesday on CNBC’s “Futures Now.”
Even though he views inflation as one of the biggest near-term risks facing investors today, Ablin isn’t predicting the 1980s’ crippling rate near 15 percent. Right now, the Federal Reserve has a 2 percent target for inflation for 2018.
“I’m not worried about runaway inflation,” he said. “We kind of cured that in the late ’70s and early ’80s. However, in order to prevent runaway inflation, we need an aggressive interest rate policy.”
According to Ablin, it could prompt the Fed to overshoot — eventually lifting interest rates above fair value in order to keep inflation benign. Pair that with the U.S. looking to bring production back home, and Ablin predicts it’s a recipe for an inflation comeback. It’s a trend that’s been absent from the economy for almost four decades.
“This trend towards mercantilism, in other words we want to do all of our business domestically and try to keep trade to a minimum, has the potential to reverse that pendulum that swung in favor of globalization, in favor of higher productivity, in favor of lower prices and start to shift that the other way,” he said. “The bond market is beginning to get a little concerned about it. Stocks are not there yet.”
He warns that ultimately higher inflation would undermine both stocks and bonds simultaneously, suggesting it’s not too early for investors to reduce risk by turning defensive. Ablin doesn’t have a hard timeline, but he sees the potential for inflation to hit stocks hard within the next couple of years.
He likes industries with pricing power such as health care, materials and energy. He also would look to make a move on one of the most interest rate-sensitive groups.
“Short REITs,” Ablin said.