Investment Idea

Maybe there will be a "taper tantrum” but focus should be on the upside

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Mikael Syding
15/09/2021 | 3 min read

On Tuesday, September 14, the revised US CPI (Consumer Price Index) inflation figures for August were presented. The official inflation rate according to the US Bureau of Labor Statistics (BLS) was reduced from 5.4% at an annual rate to 5.3%. According to, August inflation was as high as 13% in the same way as the BLS itself used to measure the CPI in 1980.

With a few exceptions, inflation is the highest since the days of central bank governor Volcker 40 years ago, while the broad stock index S&P 500 is only 1.5% below its all-time high from 3 September this year. Furthermore, bottlenecks for global container transport are accumulating, and prices for many base metals such as aluminum, nickel, lead, copper and zinc have continued to rise sharply this year.

With record prices for shares, housing, base metals and transport, anything but a little less extreme monetary policy is completely unreasonable. Even if growth and the inflation impulse turn out to be relatively short-lived (let's say about a year, just until the comparative figures are rounded in August 2022), the Fed will soon have to tighten in the interim period, so expect a lot of talk about tapering this autumn. The verbal tightening is also likely to be followed by an actual reduction in bond purchases around the turn of the year. The tightening can continue as long as the economy is returning to some kind of normality after the pandemic and inflation rates are high. But if the stock market should fall more than 15%, I think you can count on the "tapering" being stopped. Should the decline approach 25%, both the Fed and the Biden Administration may well respond with even greater stimuli than in the Covid Panic in the spring of 2020.

In that situation, it is still difficult to say whether inflation will fall back, or whether it will then have stuck. But with further increased money pressure combined with a post-pandemic economic acceleration and renewed state-funded household support, I am voting for a repeat of the development 2020-2021 with even greater fluctuations. It is very possible that the financial markets will then react more clearly as if the central banks have lost control of inflation. In such cases, agricultural commodities, gold, silver and cryptocurrencies such as Bitcoin are likely to perform much better again, while unprofitable or highly valued equities should perform worse. This is especially true of those companies that increased disproportionately in value during the "work at home" push during the pandemic, such as Zoom and Peloton.

One of the most important issues concerns the index carriers Amazon, Microsoft, Alphabet, Facebook and Apple (”AFAMA”). They are actually not very expensive, although Amazon and Microsoft feel a bit strained. However, all five giants have extremely strong positions and probably both growth potential into new areas and price power. In addition, they benefit from passive flows from index funds. As a result, they could continue to grow as a share of the index, attract additional flows and rise even more. The feedback loop continues as long as more money is created and interest rates are kept low. The higher the inflation, the more important it becomes to hide the money in what "works". Then it is partly passive value preservers such as precious metals, partly agricultural products that have a clear user value, growing population and reduced agricultural area, as well as productive market dominants such as the AFAMA companies, and finally cryptocurrencies that apply.

So be a little ready for an attempt at tapering that can give a more or less serious rebound down on the stock exchanges, but still keep your eyes mainly on catching the upside. Either by riding out the slump without being stressed for sales, or by keeping a little extra cash over the fall and spring, just in case it becomes a new taper tantrum that provides unexpectedly good buying conditions. My own strategy is based on inflation protection in the form of gold and copper mines already now, environmentally friendly future-proof nuclear energy in the form of exposure to the uranium industry, and a couple of selected small growth companies that I think will prove extremely cheap in relation to reported results in just a few years. With a little luck, gold and uranium hold up better than the stock market in general, so I can switch to a little extra stock index exposure if there is a slump. If I feel right, I will buy more investment companies then. And maybe make a new entry into one of my other favorites if it unfairly goes downhill.


SGS Alternate CPI = ShadowStats (1980-Based) Alternate
CPI-U = Official Consumer Price Index

@Mikael Syding

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