Prepare your portfolio against inflation with real assets, writes PIMCO



According to the Consumer Price Index (CPI) statistics, inflation in the United States has jumped from near zero in 2015 to 2.5% in 2018, mainly because of strong consumer spending, employment figures, tax reform and trade tensions.

In its latest “viewpoints”, Newport Beach-headquartered fixed-income giant Pacific Investment Management Company (PIMCO) reminds investors that “inflation surprises are not rare” and that “real assets” like commodities, US Treasury Inflation-Protected Securities (TIPS), sovereign Inflation-Linked Bonds (ILBs) and Real Estate Investment Trusts (REITs) offer a resilience-building solution since “correlation between stock and bond markets tend to rise when inflation is elevated”.

Considering that “inflation will be higher than in the recent past” – in the 2.0%-2.5% range in 2019, mitigating the risk requires investors to reconsider the traditional 60/40 stock/bond portfolio which would likely lose 1.1% if inflation surprises by 1%, writes PIMCO.

In order to meet the challenge, you may invest in inflation-hedging solutions (see below) for late-cycle investing “while also enhancing diversification and boosting return potential.”

Likely a war between the USA and China within 15 years



For some time on the ground and more and more frequently in words, the main military concern of the United States as seen by its government and its Generals focuses on China.

Indeed, if the immediate threat from a cybernetic and political viewpoint originates from Russia, the real long-term threat against US interests would mainly originate from China, the sole country able to reach world leadership over the next decades.

US President Donald Trump has repeatedly demanded more military funding from his European NATO allies considering that “the United States needs a very strong European pillar (because) in 15 years it is a very strong likelihood that we will be at war with China,” said US General Ben Hodges at the Warsaw Security Forum.

Now retired and a former commander of the US Army in Europe, Hodges believes that the United States will not have the ability to deal with both Europe and Asia at a same time.

In addition to the needed increase in their military capabilities, Europeans must also make sure to restore their sovereignty at home, said Hodges, emphasizing that China owns more and more companies and infrastructure including more than 10% of European ports.

Trump’s trade protectionism will eventually prove a loss-loss game



In the first stage, you believe this can work and that you will reap many benefits from putting the pressure on your business partners, however in a second stage, you realize that you have gravely damaged confidence and future growth opportunities with the same business partners.

This two-stage process sums up what a number of business leaders have explained in recent weeks as US President Donald Trump has strengthened his “America First” trade policy, notably deciding new tariffs for Chinese imports worth hundreds of billions in US dollars (USD).

On the one hand, people close to the Trump administration emphasized POTUS “hard approach” is a means of negotiation with a view to reaching a better balance for US trade; on the other hand, some business people and experts stressed on the fact that China has shown no sign of yielding to Trump’s pressure and that such a resilience could start a negative chain reaction for the global economy and thus for the US economy too.

Donald Trump’s policy is also to said be shortsighted as China will become more and more powerful in the future and more capable of crafting new ways of neutralizing US economic clout for instance by developing deeper, larger trade relations with Europe.