By Steve Goldstein, MarketWatch
For many investment professionals, there has never been a world where interest rates have done anything but gone down.
“I started in 1994. Over my whole career, interest rates have gone down. It’s been a one-way trade to buy growth stocks,” says Daniel White, senior research and strategy manager at Canada Life Investments in London.
“When you have no inflation, or lower and lower inflation, you buy asset-light businesses,” he says, referring to companies that aim to keep variable costs low, rely on outsourcing and don’t have lots of fixed costs.
“But if you start getting inflation in the system, the whole landscape begins to change,” he says. Suddenly companies with high fixed costs, from hotels to utilities, are able to pass on those costs.
The rally in gold — it recently topped $1,800 an ounce for the first time in nine years — reflects concerns that central banks will aggressively finance fiscal spending. “It is very addictive,” he says. “[U.K. Prime Minister] Boris Johnson’s new tagline is ‘build, build, build,’ which is very close to ‘spend, spend, spend.’”
Is his firm putting their money where their mouth is? A little bit. “We certainly like the tech trade but we have been hedging our bets,” he says, declining to name individual companies. “Being very mindful of debt levels, we have picked up stocks that do have operating gearing, like hotel stocks.” The firm is wary of banks and investing in any company with high debt levels.
“The reality is that, the more stimulus there is, then the more likelihood that markets are probably going to carry on grinding upwards, even if it may be weak in the new few months,” White says. “But with every passing month, we’re storing up great problems for the future.”
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The U.S. said it sanctioned four current or former Chinese government officials in connection with serious rights abuses against ethnic minorities in the Xinjiang Uyghur Autonomous Region.
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U.S. producer prices fell 0.2% in June, due to a decline from services industries. Economists had forecast a 0.4% gain. Overseas, Italian industrial production jumped 42% in May.