How should investors position for stagflation? Economists at Deutsche Bank can already see similar patterns between how different assets performed in the 1970s and how they have been doing today. Commodities are the only asset class to see relatively consistent gains.

Traditional assets need inflation back towards target

“The main takeaway should be that if inflation stays high for many years, then both history and today's high starting valuations suggest it will be very difficult to generate positive real returns in most traditional financial asset classes. Nominal returns will also likely underperform their long-term trend.” 

“Commodities could be the exception although the run-up in prices in the last few quarters leaves the asset class much more expensive than it was.”

“Traditional assets will need inflation to return back towards target in order to get back to long-term positive real returns. If not, then prepare for a decade of real wealth destruction after four decades of huge real wealth accumulation.”

 

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