Inflation is surging again and it’s driving savvy investors to rethink how to manage their portfolios. So, what assets should you buy right now to protect your wealth? On this episode of In the Money with Amber Kanwar, James Davolos, Portfolio Manager and Director of Research at Horizon Kinetics, breaks down why investors need to reconsider everything they know about portfolio construction in a higher inflation world. He explains why a simple “buy gold” strategy isn’t enough, why real assets are still early in a long-term cycle, and why targeting 10%+ returns is essential just to stay ahead of rising prices.
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The eldest is going on a field trip to the Humane Society today so naturally I am bracing myself for when she comes home begging for a dog, or worse – a cat (yeah, I said it).
Here are five things to know today:
Inflated: Stocks are in the red after US inflation came in at the highest level since 2023. Headline inflation soared to 4.2% thanks to a spike in energy prices – the highest level since 2023 and the third month in a row of reaccelerating inflation. Core inflation also re-accelerated to 2.9%. The market isn’t freaking out about the numbers – yes stocks are in the red, but they were before the print as well. The rate outlook in the US is relatively unchanged with the market still pricing in one rate hike toward the end of the year. We will get a chance to hear about the Federal Reserve’s thinking about the pace of inflation next week when it makes its first interest rate decision under new Fed Chair Kevin Warsh. Aside from the energy shock, things like health insurance, transportation services, and new vehicle prices came down. There is a lot of different ways to torture the data – but the fact remains: inflation has been above target for 5 years now. It is the focus of our latest episode with James Davolos where he says inflation is likely to run between 3-5% for the next few years which means investors need a minimum of 10% return to keep above water. His view is that you do that by owning hard assets and names his favourite ways to play that theme in the episode. Check it out!
Decision day: The Bank of Canada is set to make an interest rate decision this morning at 9:45amET. They are widely expected to keep rates on hold for the fifth meeting in a row but it will be the first chance to hear how the BOC reconciles disappointing Q1 growth and recession talk against robust job growth in May. Right now the market is pricing in the slight chance of a rate hike – something our upcoming guest, David Rosenberg, calls absurd. The rate hike bets are hard to reconcile with the weakness in the Canadian dollar. The loonie is trading around a 6-month low while bearish bets against the currency are at the highest level in six months. “The move likely reflects weak domestic momentum, with two consecutive quarters of negative GDP growth reinforcing expectations that the BoC will struggle to deliver on the roughly 30 bps of tightening priced in for year-end,” wrote BMO’s Erik Johnson. However, with bets against the currency running double the average, this could create conditions for a Canadian dollar rally. “With positioning now heavily skewed, the bar for a CAD rebound is lower. Any improvement in geopolitical or trade conditions could trigger a short-covering move—but both remain highly uncertain catalysts for now.”
Gangbusters: The IPO market is popping with SpaceX raising $75 billion and Apotex in Canada raising $1.3 billion. Both deals were significantly oversubscribed. Apotex is a generic drug maker that is going public years after its founder, Barry Sherman and his wife, were found murdered in their basement. The case remains unsolved. The deal is priced at $24/share and is expected to start trading at some point today under the symbol APTX. Canada doesn’t have a great track record when it comes to biotech: think Biovail and Valeant. Maybe this time will be different. As for SpaceX, it is due to start trading Friday and apparently drew over $250 billion in orders. Investors will be on edge to see how it trades and how the market absorbs this $1.75 trillion behemoth. But after the pomp and circumstance of the IPO, it will have to get on with mundane things like delivering quarterly results and proving it is worth 100x sales. Maybe there will be another deal on the horizon: Dan Ives of Wedbush says by next year there is an 80% chance SpaceX and Tesla will merge. “Musk wants to own and control more of the AI ecosystem and step by step the holy grail could be combining SpaceX and Tesla in some way to give the connected tissue between both disruptive tech stalwarts looking to lead the AI Revolution in this next tech chapter for the market,” wrote Ives in a note to clients.
Super macro: Shares of Super Micro Computer are falling 12% after announcing a $7 billion equity raise in order to satisfy $39 billion in AI server orders. One by one companies are racing to get their financings in place before the SpaceX IPO it seems. First it was Google, yesterday we saw Applied Digital do a financing, Meta shares are down 11% this years on fears they will do the same. Super Micro says the financing will help them pay for equipment necessary for making servers that are loaded with Nvidia chips that handle AI workloads. It is a competitive market with Dell and HPE seeing their businesses soar on demand for their AI servers. Super Micro shares have lagged and investors clearly don’t like the dilutive nature of the equity raise.
Comeback: Shares of Cracker Barrel are rocketing 16% as quarterly results show they are recovering from a disastrous rebranding effort. Last year Cracker Barrel changes their logo to remove the man standing in it, known as Uncle Herschel. The company was accused of going woke by erasing its Southern roots from their logo. The backlash was so severe the company reversed course in just one week with US President Donald Trump weighing in. Cut to today: the company has leaned into American heritage with its decor and merch. As a result, sales aren’t falling as much as feared and it is working so well that the company boosted its forecast for the year.
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