Analysts and the media have been warning about the potential for a new period of stagflation. What does that mean? How can investors prepare to weather what is coming next?
On the surface the economy certainly seems to have well outperformed expectations through the COVID and Russia crises. How much that is founded on solid fundamentals and logic, versus manipulation is definitely up for debate.
What Is Stagflation?
Stagflation is a period of both simultaneous recession and inflation. Also accompanied by rising and high unemployment.
Imagine a very weak economy, with very little, or negative growth. Along with surging unemployment. Plus, soaring prices and living costs.
As you can envision, it is a pretty painful time for many people. It is hard for them to find work. Pay rates may be falling when there is work available. Yet, groceries, taxes, housing, and the cost of debt is getting more extreme.
Some may argue that certain forces are definitely pushing the bulk of the economy in this direction.
The highest income earners, CEOs, wealthy families, as well as the welfare and lower working class should be just fine. One end of the market is benefiting from high prices and control, while the other is being buoyed by various forms of stimulus and intervention.
Can The Fed Manage A Soft Landing?
Bloomberg and The Washington Post now declare that the Fed is making a new recession inevitable.
Given current trends, supply chain issues, and ongoing crises, inflation doesn’t look like it is going away anytime soon. In fact, everything is aligning for it to get worse. Such as the Russia-Ukraine situation, a historic new $2.5T tax increase being proposed, and rising interest rates. Zumper also reports that multifamily rental prices are outpacing the incredible surge of last year, and are on track to go up another 30% this year.
Meanwhile the Fed may begin a sprint in hiking interest rates to try to cool the economy. This may drive up unemployment, and stall growth, causing a recession, but it may not slow inflation.
Globally, it has historically been almost impossible for government intervention to pull off a soft landing. Meaning reducing negative elements like inflation, without collapsing the economy. We saw how rate hikes played out in 2008. We didn’t have the inflation, but unemployment was out of control.
Best Investment Plays For What’s Ahead
There are two main plays for either way you believe the economy is going. One is to take advantage of opportunistic plays. Such as acquiring distressed assets at a discount. Like mortgage notes or real estate. It’s all about getting in at the right pricing.
The other is to invest for wealth preservation and passive income, into those assets which will hold their value best, and perform best during these periods. Multifamily rental properties are the perfect example of this.
More and more observers appear to believe current policies and trends are leading to some change in the economy. It may well already be here, but just hasn’t shown up in the data yet. Or the markets could continue to be manipulated and outperform expectations, regardless of the rationale.
Whatever is next, there are certainly assets and investment strategies that can help preserve your finances, and see them grow.
Find out more about investing in secured debt and real estate, go to NNG Capital Fund