Inflation is a leading predictor of difficult times for investors, and most asset bear markets tend to get their start with this indicator rising. Rising inflation often precedes rate hikes by central banks, whose aggressive actions are targeted at bringing inflation down quickly.
These moves by central banks often have side effects in the form of slower economic activity, as the money supply is tightened and borrowing is more expensive. However, troubling trends may arise if there is more to a market downturn than inflation, which is exactly what Economist, Nouriel Roubini, describes in his new book “MegaThreats: ten dangerous trends that imperil our future, and how to survive them.”
Namely, Roubini joined TD Ameritrade Network on October 18 to discuss his new books and worrying trends he sees in the markets. Asked if markets are too focused on inflation at the moment, Roubini stated:
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“Yes! It’s not just inflation, we will have stagflation like in the 1970s, rising inflation, and negative economic growth, but it’s going to be worse than in the 70s. I expect a great stagflationary debt crisis.”
Initial problems and solutions
Roubini sees stagflation happening because, among other things, of the negative short-term supply shock, which is driving growth lower and inflation higher, the war in Ukraine, the impacts left by Covid on supply chains, and “zero-Covid” policy in China.
Furthermore, Roubini points listeners to chapter 5 of his new book, where he identifies additional 11 shocks that will cause mid to long-term issues for global economies.
Finally, among the doom and negative growth seen by Roubini in the future, he proposes that investors focus on things that are hedged against inflation. Short-term treasuries, Treasury Inflation-Protected Security (TIPS), gold and other precious metals, and real estate, which is resistant to environmental disasters, make the list of investable assets, according to Roubini, for the foreseeable future.
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