Need to Know: Hedge fund manager lays out his two best investments for a post-pandemic inflationary world

Need to Know

Critical information for the U.S. trading day

The pandemic end game.


Getty Images

The U.S. reached another grim pandemic milestone Friday, with news that post-recession employment gains have largely been wiped out. That’s as traders start to price in negative interest rates.

But the stock market seems to be saying no problem this morning, thanks to some juicing from a familiar old chestnut. A phone call Friday between U.S. and China trade officials has eased some worries that a Phase 1 trade deal might get hung up — a problem no one needs right now.

Our call of the day comes from hedge fund Stanphyl Capital portfolio manager Mark Spiegel, who is pretty gloomy about the economic future that lies ahead, but has straight-up advice for investors wondering how to face down this pandemic. “If you have a long-term perspective, buy an S&P 500 index
SPX,
+1.22%

and own some gold,” he told MarketWatch in an interview.

Spiegel, who is best known for his bearish view on Tesla
TSLA,
+4.37%

(he’s still bearish), sees stocks as a “somewhat reasonable hedge” against the inevitable inflation he sees coming. “The endgame here is that the government prints money and prints money and prints money,” he said.

The manager says too many are thinking the world is going to bounce out of the coronavirus-driven depression that’s already hitting us. He explains that even if a coronavirus vaccine comes in 18 months, the economy will spend another year crawling out of the downturn, then it will take another year for businesses to get confident enough to start spending and hiring. By then, we’ll be facing higher inflation and possibly a repeat of 1970s stagflation, he says.

“The eventual end-game here is inflation, higher interest rates and a lower dollar, but it’s very hard to time that,” Spiegel says. “When that happens, stocks eventually go up in what’s called nominal terms, even if not in inflation-adjusted terms. If a company makes Doritos and a bag of Doritos goes from $2 to $8 because of inflation, that company’s earnings are gonna go higher in nominal terms, even if they trail inflation.

“So in the very long run, stocks will be a somewhat reasonable hedge against inflation,” he said.

The market

The Dow
DJIA,
+1.40%

, S&P
SPX,
+1.22%

and Nasdaq
COMP,
+1.23%

are climbing in early action, with a positive day for European stocks
SXXP,
+0.86%

and most Asian markets. Oil prices
CL.1,
+4.24%

are also up.

The chart

Here’s a lockdown chart that shows how the U.S. has fallen behind Italy, which started its own shutdown weeks before. It comes from Torsten Slok, chief economist with Deutsche Bank Securities:

The buzz

A record 20.5 million jobs were lost in April, and the unemployment rate hit a post World War 2 high of 14.7%. The so-called U6 unemployment rate hit 23%, suggesting one in four Americans are either underemployed or jobless.

Hitting the airwaves just ahead of that data, President Donald Trump commented that he was having “a very hard time with China” and hasn’t decided how to handle the trade relationship.

But Chinese Vice Premier Liu He, U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin reportedly spoke Friday morning and pledged to create favorable conditions for a Phase 1 trade deal.

Chinese cloud-computing company Kingsoft Cloud
KC,

has managed to raise more than half a billion dollars in a U.S. IPO on Friday.

Tickets for Shanghai Disneyland
DIS,
+2.29%
,
which will reopen in China next week, are selling fast — good news for the House of Mouse after a 90% collapse in earnings.

France will ease its lockdown as of Monday, but not in Paris. Meanwhile, it’s espressos to go in Rome. Blame U.S. meat shortages on industry “oligarchs” like Tyson
TSN,
+2.64%

, says this hedge fund manager. Airbus
AIR,
+0.73%

is developing smell sensors to detect the virus on planes, and airfares could climb 50% due to safe-distancing.

SeaWorld
SEAS,
+2.24%

results disappointed, and the stock is falling. Shares of ride-share group Uber
UBER,
+4.74%

are up despite a loss, a sign investors may be a bit too optimistic. Shares of streaming-media company Roku
ROKU,
-6.85%

are down on ad cancellations.

Random reads

Father and son arrested over horrific shooting of a former football player

Survey warns of a wave of pandemic suicides

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