“The Idea That Inflation Is Transitory Is Nonsense”: How One Hedge Fund Manager Plans To Profit From Fed Stupidity

Ahead of tomorrow’s FOMC decision, and in general, two clear camps are emerging when it comes to the increasingly acrimonious debate whether the current soaring inflation is “transitory” or not. In one camp we have the establishmentarians: those with little vision, limited imagination, and whose job precludes them from conceiving of any outcome but that accepted by the groupthink led by the Fed. As noted earlier, this now includes the vast majority of Wall Street…

… not to mention most central bankers and virtually every TV newscaster and reporter, desperate to hit that career pinnacle of asking the Fed chair a ridiculously boring and boneheaded question one day: a career goal that will never happen if one dares to think originally.

In the other camp we have a handful of contrarians, “divergents”, and the occasional brilliant trader such as Paul Tudor Jones ( “buy commodities, buy crypto, buy gold”), Kyle Bass (“real inflation is 10%…The Fed has got to really start thinking about food prices.”) and Michael Burry, people who took the opposite side to the consensus and won big.

People always ask me what is going on in the markets. It is simple. Greatest Speculative Bubble of All Time in All Things. By two orders of magnitude. #FlyingPigs360

— Cassandra (@michaeljburry) June 15, 2021

They will likely end up winning again.

Today we can add one more to what will soon be the winning team: Wincrest Capital founder Barbara Ann Bernard was quite clear where she stands on the temporary/permanent inflation debate when in an idea with Bloomberg she said that “The idea that inflation is transitory is nonsense.”

Picking up on what BofA, Deutsche Bank, and increasingly more “serious” analysts have said, the chief investment officer of the Nassau, Bahamas-based Wincrest said that much of the Biden administration’s agenda, including reducing wealth inequality and promoting the ESG hypocrisy, support a structural lift to inflation.

Naturally, Fed officials, who have been always wrong about everything but can cover up all of their mistakes with ever more grotesque amounts of money printing, have been taking the opposite view, emphasizing that a recent surge in inflation won’t last. A lot is riding on this debate, and if money managers like Bernard or Paul Tudor Jones prove correct, it could mean that central bankers will have to move ahead with plans to begin normalizing their ultra-loose monetary policy.

Unlike many of her peers, Barnard has no problem with being outspoken: the money manager began her career in finance at 15, when she persuaded the iconic investor John Templeton – a fellow Bahamian resident – to take her on board for the first of what would become a series of summer jobs at Templeton Global Advisors. Her career also included stretches at Deutsche Bank AG in alternative investments and at Goldman Sachs Group Inc. as an investment banking analyst.

For Bernard, the U.S. administration’s focus on wealth distribution and the potential for higher minimum wages in some states could put more money in more pockets, adding to price pressures. Talk of a carbon tax and increased focus on environmental, social and governance initiatives also stand to add to companies’ costs.

“All of that plus changing supply chains is inflationary,” she said, making a point so obvious one can see why nobody at the Fed can grasp it.

Like PTJ she plans on making money when the “transitorists” are proven wrong, and like PTJ she is going long commodities, such as nickel and copper. On Monday, iconic trader Tudor Jones told in an interview with CNBC that inflation risk wasn’t transitory. If he were on the investment committee of a pension fund, he said he’d “have as many inflation hedges on as I possibly could.”

Yet despite growing warnings from some of the most erudite traders of their generation, the Treasury market appears unfazed by the inflation risk, and as we noted previously, yields in the world’s biggest bond market aren’t far above a three-month low set Friday. The rate is down from a March 30 peak of 1.774%. The bond market’s most-watched proxy for inflation expectations has also faded from recent highs.
Bernard’s take is that the market is ill-prepared for what’s ahead (we discussed this in “5 Reasons Why Treasury Yields Tumbled Even As Inflation Surges… And Isn’t Transitory“).

“There are ways to outrun inflation,” Bernard said. “But if you just sit there, you are going to get rolled over.”