Stagflation and a possible world war: Here’s how to trade it, according to one hedge fund manager
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Global markets may have to contend with stagflation and a possible world war, but several themes offer good ways to make money in the short and medium term, says David Neuhauser, founder and chief investment officer at U.S.-based Livermore Partners. He has long been a fan of oil and gold assets, which logged strong performances when markets faced a similar stagflationary environment in the 1970s — and says they look attractive now. “The best outperformance was seen in things like oil and gold and hard assets, [which] kept up with inflation, and there was really good potential for returns on capital,” Neuhauser told CNBC’s “Squawk Box Europe” on Friday. Livermore Partners is a long/short special situations hedge fund with a focus on energy, financials and industrials. “I think oil is the best place to be, if you have a world of risk — like I keep describing, we have the potential for world war on a global scale, which can cause tremendous uncertainty over the economics. Therefore, oil is on pace to break $100 a barrel for Brent,” he added. In the year to date, Brent crude prices were up around 6% to trade around $88 a barrel on Oct. 31. Prices edged up after Hamas launched an unprecedented terror attack against Israel on Oct. 7, but have since ticked lower. Neuhauser’s stance on gold stems from how the asset “is one of those areas that people go when it’s risk off.” The precious metal is touted as a “safe haven” that investors typically seek out in times of uncertainty. Luxury plays Another sector that Neuhauser likes is luxury. Noting that it may be an unusual sector to invest in when markets are weak, Neuhauser believes luxury names will continue to perform on the back of ongoing demand among high-net-worth consumers. “The ultra-wealthy consumer [is] not going to be greatly impacted by a slowing, stagflationary environment. They still have enough income, enough wealth and most likely have assets … so their income streams are going to be pretty straight, tight and strong,” he said. The hedge fund manager named French fashion house Louis Vuitton and Italian sports car manufacturer Ferrari as the “best and brightest of the market.” He also has positions in British automaker Aston Martin and fashion brand Burberry , which he considers “more turnaround plays.” Neuhauser is steering clear of banks for now, given high interest rates globally. Although high rates mean banks earn more interest from borrowers, they can also mean higher loan losses as customers struggle with the economic environment. The U.S. Federal Reserve put a pause on hikes in September, after raising rates to a 22-year high. “Banks I think are just still going to be in for a world of hurt on a go-forward basis,” the hedge fund manager said.
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