Portfolio Management in a High CPI Environment

Today, May 12th, 2021, the CPI readings came out. The CPI is the consumer price index, a measurement of consumer goods and services that households can purchase. Oftentimes, CPI can be indicative of inflation. The CPI readings for May 12th read an increase of 4%, which is an all-time high since 2008; economics predicted a CPI increase of about 3.6%. Moreover, the most concerning parts are that the Federal Reserve sees this as a temporary issue and believes it won't persist long enough to influence policy. As we have previously highlighted, the trillions of dollars that the Fed has printed are bound to have some long-term effects on the economy. We have already highlighted this in previous editions of the Warrant, so let's look at the price action of a couple of markets that we said would go up in a high CPI/inflationary market: 

1. Gold/Precious Metals: We previously highlighted the fact that gold was one of the largest discrepancies in the world, here is a look at the price of gold and Glencore:

2. Energy - We have been very bullish on hard assets, and energy is just one of many hard assets that we think will boom. Let's look at a couple of charts Oil States International, BP Oil Trust, XLE, and XES: 

These are probably the biggest two industries that offer the best potential for high returns in a high CPI environment. Some other ideas are buying land REITS, as well as REITS in general, they will generally increase in this environment, as real estate will generally increase in price as inflation increases, some ideas are Ashford (AHT), The Geo Group (GEO), Gladstone land (LAND), and Texas Pacific Land Corp (NYSE: TPL).  

Markets have been falling pretty hard in the past few days, this is indicative of a potential correction/recession to help cool off markets. If the selloff of the DOW and the NASDAQ continues throughout the next couple of months, it will certainly open up space for potential investments. Right now, markets are still way too overvalued to be considered “undervalued”, but once the FANGS have bottomed out, there will be several buying opportunities. So let's talk about how to position yourself in terms of portfolio management when 1. CPI readings indicate potential inflation and 2. When the market bottoms out. 

1. CPI Readings Indicate Potential inflation:

   Hospitality and Quality of Life plays:

   Restoration Hardware (RH), Sleep Number (NASDAQ: SNBR), Casper Sleep (CSPR), Kohl's Corporation (NYSE: KSS), Hibbett Sports (Hibb), Nordstrom (JWN), Marriott (MAR) and G-III Apparel Group (GIII) and stocks similar to these. 

2. Commodities

   Exelon Corporation (NASDAQ: EXC), Western Uranium & Vanadium Corp (WSTRF), Uranium Energy (UEC), BP Prudhoe Bay Royalty Trust (BPT), MVO Oil Trust (MVO), Shell Midstream Partners (NYSE: SHLX), BP (BP), Freehold Royalties (FRU), Andersons (ANDE), and Tyson Foods (TSN)

3. Real Estate Investment Trusts (REITs)

   Farmland Partners Inc. (FPI), Gladstone Land Corporation (LAND), Realty Income (O), and the GEO Group (GEO), Texas Pacific Land Trust (TPL)

4. When the market bottoms out:

   a) Growth Stocks 

   Facebook (NASDAQ: FB), Apple (NASDAQ: AAPL), Amazon (NASDAQ: AMZN), Starbucks (NASDAQ: SBUX), Square (NYSE: SQ), Uber (NYSE: UBER), Nike (NYSE: NKE), and stocks that are associated with strong long term growth in their earnings. 

   b) Distressed Value:

   Michaels (NYSE: MIK), Party City (NYSE: PRTY), Kirkland’s Home (NASDAQ: KIRK), G-III apparel group (NASDAQ: GIII), and companies that have moved so far from their mean they could be trading in distressed territories or are trading in distressed territories

   c) Energy and Commodities:

   Transocean (NYSE: RIG), SPDR Gold Trust (NYSEARCA: GLD), SPDR Silver Trust (NYSEARCA: SLV), BP (NYSE:BP), Franco Nevada and (NYSE: FNV)