The Other Inflation Play No One Understands

Google

Over the last three weeks, I’ve been talking about the three primary inflation trades that you’ve probably seen in the mainstream press. We’ve largely been out in front of them because of the nature of the inflationary trade and how capital rotates.

First, there are the energy producers that benefit from rising crude and natural gas prices. 

Second, we’ve talked about the banks and how higher rates and higher deposits bolster their bottom line. 

Third, basic materials producers of metals that have industrial use. I’m talking about palladium, silver, copper, and platinum producers. It helps if they are based in another country because they offer the nice diversification from the U.S. dollar.

But there’s another trade. An easy trade. A set and forget trade. A wealth-building trade. Alphabet Inc. (NASDAQ:GOOGL)

Hey, Google, How Do I Buy Google Stock

At the height of the COVID-19 breakout – when the markets were experiencing a global meltdown – Alphabet stock plunged to about $1,000. It has since tripled. 

In fact, it’s now up 100% from its 52-week low. We can talk about the fact that Alphabet had new record ad sales and the work-from-home trend. But there is a technology component to stocks like Google and Amazon that have institutional investors well-buffered. 

These stocks have extremely high margins. It has operating and net margins above 28%. And it operates in a deflationary industry. So, rising inflation isn’t exactly going to impact Google. 

For years, investors have benefited from these companies as a bit of a backdoor play in the belief that these companies will retain their value. In essence – FAANG stocks are hypothetically carrying the same “wealth preservation” as assets that receive such classification like metals and foreign currencies. This company has weathered worse storms than inflation. 

Other sectors that can perform very well in an inflationary environment include financial technologies and payments and semiconductors. 

Taking a Look at Momentum

Right now, market momentum is negative as we head to the close.

There was a signal flip this afternoon from green. There has been a significant amount of negative pressure rising out of mid-cap and small-cap stocks. We’ve seen over the last few months that every time a selloff happens and market volatility increases, the pressure has not come from the mega-cap stocks. 

I’ll explain more why this matters and why I will be moving over to cash.

Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.
Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.

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