It is hard to miss inflation in the recent numbers, and maybe even more so, the fear that inflation is going to hang around a lot longer than the Federal Reserve and investors would like. You may see it at the pump, in food prices, or the housing market, and for those who follow stocks, you definitely hear about it in the billionaire investor talking points.

Billionaire hedge fund manager Paul Tudor Jones said inflation may be worse than feared for both the markets and society . Bill Ackman called last week for the Federal Reserve to start raising rates as soon as possible. David Tepper said stocks don’t look like a great investment from here, but it all depends on rates.

You get the picture.

Warren Buffett, not fond of short-term calls on the economy or market, had plenty to say earlier in his career about what inflation can do to stock market wealth. Buffett’s view of inflation was heavily influenced by the runaway inflation of the 1970s. “Inflation is a far more devastating tax than anything that has been enacted by our legislatures,” he wrote in 1977. “The inflation tax has a fantastic ability to simply consume capital. … If you feel you can dance in and out of securities in a way that defeats the inflation tax, I would like to be your broker — but not your partner.”

A view from a petrol station shows gas prices over $4, in Arlington-Virginia, United States on October 30, 2021.

Yasin Ozturk | Anadolu Agency | Getty Images

What the billionaires think and do is pretty far from lining up with the investment reality of most individuals, so take it down a few zeroes, what are wealthy do-it-yourself investors — individuals with at least $1 million in a brokerage account that they manage on their own — thinking right now?

They are increasingly worried, too, according to a survey from Morgan Stanley’s E-Trade Financial of millionaire investors provided exclusively to CNBC. According to the quarterly E-Trade data, these wealthy investors have not been this concerned about their stock market holdings or the economy since Q2 2020, right after the March 2020 Covid crash and shutdown of the U.S. economy

“We’re definitely seeing a downtick in optimism,” said Mike Loewengart, managing director of investment strategy at E-Trade. “They are starting to see some cracks in the economic recovery and it’s dampening bullishness.”

More of the wealthy still describe themselves as bullish, but just barely, with that indicator dropping from 65% in Q3 2021 to 52% in the current quarter. That’s the lowest level of bullishness since Q2 2020.

The E-Trade survey was conducted October 8 to October 16 among 119 investors with $1 million or more of investable assets. The Fed’s transitory inflation argument has lost a lot of support

Last quarter, 72% of these wealthy investors said inflation was “transitory,” supporting the Fed view. That has now fallen to 53%. Those who “strongly disagree” with the Fed’s transitory view increased from 9% to 19%.

Inflation has been a concern all year, but “while it isn’t new, it is a lot stickier,” Loewengart said.

A new CNBC Fed Survey out on Tuesday finds respondents — which includes money managers, strategists, and economists — forecasting the first rate hike to move up to September 2022 from December in the last survey. And almost half (44%) of the 25 respondents believe the Fed will raise rates by July. A majority (60%) believe inflation is a big enough concern that the Fed should halt all asset purchases now.

The E-Trade millionaire set, meanwhile, includes many business owners who have firsthand experience with the supply chain challenges and the bite of inflation, and they may also be seeing it in broader investments they make beyond public equities, and that is contributing to these investors being more attuned to the question of inflation.

“It’s about reckoning the environment will be more challenging and you have to pick your spots accordingly. But you still have to be invested to capture future returns,” Loewengart said.

Michael Sonnenfeldt, founder of Tiger 21, an investing network for the affluent which includes many former and current business owners, said no practical business person he knows would now make a bet against inflation heating up for a period of time. “To most of our members it feels like something more than transitory and the start of a secular trend. There is more consistent evidence of inflation coursing through the economy than we’ve seen in decade, or longer.” Success against the virus means more focus […]

source For first time since Covid tanked market, more wealthy investors think stocks are headed for a drop

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