Thread by @ReformedTrader

1/ The Great Inflation, Factors, and Stock Returns (Stanhope)

"Equities as a whole may not welcome high rates of inflation, but certain stock selection factors have shown resilience in periods of rising prices."

canvas.osam.com/Commentary/Blo…

2/ "During the Great Inflation era (1965-1982), inflation annualized at 6.5%. While comparisons to our current situation are tempting, the structure of the global economy and monetary, fiscal, energy, and labor policies are dramatically different."

3/ "Inflation is a ‘tax’ on revenues, not profits.

"High taxes in high-inflation regimes can push the effective tax rate above 100%, leading corporations to rack up expenses to reduce pre-tax profits.

"Current corporate tax rates should not exacerbate inflationary forces."

4/ "Although money supply has grown at a similar rate as in the ‘Great Inflation’, velocity has remained sluggish, mitigating the risk of an inflationary spike.

"The system is awash with unused liquidity.

"The U.S. is now a net exporter of energy & more protected from shocks."

5/ "As inflation climbs, equity returns fall. This often stems from multiple compression. During the Great Inflation, the S&P 500 P/E ratio shrank from 20x in 1965 to 10x in 1982 as investors required greater returns for the risk of allocating to equities when inflation raged."

6/ "In the highest-inflation decile, the equity market generally delivered negative real returns. Factors may serve as a hedge within equity portfolios in those runaway inflation environments."

7/ Related reading

Rate of Return on Everything

https://twitter.com/ReformedTrader/status/1259274241515483136

Best Strategies for Inflationary Times

https://twitter.com/ReformedTrader/status/1379188472750071809

US Inflation and Global Asset Returns

https://twitter.com/ReformedTrader/status/1442160007898800130

Mapping Investable Return Sources to Macro Environments

https://twitter.com/ReformedTrader/status/1410309893425287171