At Aitken Investment Management (AIM) we strongly believe 2017 will be the year when inflation surprises on the upside. We have our fund positioned short bonds and certain “bond quasi” defensive equities around the world, vs. longs in companies we believe possess genuine pricing power such as Treasury Wine Estates (TWE) and Aristocrat (ALL) in Australia for example. We are also long cyclical companies all around the world.
We also believe central banks will be forced to abandon zero interest-rate interest rate policies (ZIRP) and wind back QE. We simultaneously expect governments to take over the heavy lifting via expansionary fiscal policy, led by the USA with its “America First” strategy. Populist politics equals fiscal spending and protectionism. Austerity is so dead, ZIRP is dying and QE was just a waste of money.
The combination of higher than expected inflation, central banks shrinking their QE policies/abandoning ZIRP, and fiscal stimulus is a genuine triple threat to the bond market bubble. And make no mistake, bonds are a tremendous bubble which as we have said before are “real return free capital risk”.