James Montier


A staggering 77% of Americans fear soaring inflation. James Montier has a more sanguine view of inflationary risks. In this session at the GMO Fall Conference, James explored some of the tall tales and true causes of inflation. He also explained what investors can do from a portfolio perspective if he is wrong.

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"If you really want to protect yourself against inflation, please go and buy cheap equities."

Key Points

  • Many of the common explanations of inflation are dubious. However, all sustained inflations seem to have one element in common: a wage-price spiral occurs. This is how inflation gets embedded in the system.
  • Much of the current debate focuses on whether the current upswing in inflation is transitory or permanent. For it to become permanent, we would need to see signs of resurgent labor bargaining power. There is no clear evidence of this just yet, although there may be a few tentative straws in the wind.
  • Rather than spending too much time trying to decipher the signs of future inflation, investors’ time would be better spent figuring out how to make their portfolios robust to inflation. Many of the usual suspects for inflation protection don’t seem to stand up to empirical scrutiny. TIPS are fine if you want an inflation hedge, but they come at a cost.
  • Long-term investors should be more interested in stores of value rather than hedges. Despite their reputation, commodities appear to be questionable stores of value. However, equities perform well as a store of value – they effectively straddle the wage-price spiral because they are businesses that both pay the wages and charge the prices. Even better than equities, one can own cheap equities. Value stocks are like free inflation insurance.


Source: Ken French, Global Financial Data, GMO

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Disclaimer: The views expressed are through the period ending November 2021, and are subject to change at any time based on market and other conditions. This is not an offer or solicitation for the purchase or sale of any security and should not be construed as such. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities.
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