1973 Inflation Spiral Playbook
l@sasacul123
+3.8%
since Oct 8
The idea
I think today's energy-driven inflation spreads into wages and everyday prices like it did in 1973, rather than fading quickly. So this basket leans into scarce physical assets like oil and gas producers, gold and copper miners, farmland, timber and fertilizer, plus businesses that can raise prices with inflation like pipelines, railroads and waste haulers. I'm steering clear of long bonds, pricey growth stocks and packaged food, the groups that struggled most back then.
What it owns
- Pipelines, railroads and waste haulers have contracts or pricing power that raise fees automatically with inflation, passing rising costs on to customers. · Williams CompaniesIt runs major natural gas pipelines and collects tolls on gas moved under long contracts, and those fees tend to step up over time as costs rise., Waste ManagementIt owns scarce landfills and runs collection routes where customers rarely switch, and many trash contracts raise prices automatically with consumer prices., Union PacificIt operates the largest railroad network in the western US and can raise shipping rates faster than its costs when inflation spreads., Republic ServicesIt owns scarce landfills and runs collection routes where customers rarely switch, so it can raise prices steadily as everyday costs climb., Kinder MorganRates on many of its interstate pipelines are adjusted each year under a federal index tied to inflation, providing built-in price increases., CSXIt operates the main rail network in the eastern US and can push rates up when shippers have no cheaper option, raising prices faster than wages and fuel.27%
- Oil and gas producers sell the commodity driving inflation, so their profits and cash flow climb as prices rise, just as they did through the nineteen seventies. · Exxon MobilIt pumps, refines and sells oil worldwide, so higher crude prices flow straight into cash generation and shareholder returns., EOG ResourcesIt drills shale oil at some of the lowest costs in the US, so it keeps earning well even if oil prices wobble and earns far more when inflation keeps prices high., ConocoPhillipsIt finds and pumps oil and gas, so its profits move more directly with commodity prices than integrated energy companies., Texas Pacific LandIt owns huge stretches of the Permian Basin and collects royalties and water fees without paying to drill, so income rises with oil and gas prices while costs barely move., Canadian Natural ResourcesIts oil sands reserves last decades and do not decline fast like shale wells, which suits a bet that inflation stays high for years rather than months.24%
- Gold and copper held their value through the nineteen seventies, and miners earn more when metal prices rise faster than their extraction costs. · NewmontIt is the largest gold miner and earns more per ounce as gold rises because its mining costs do not climb as fast as the metal price., Agnico Eagle MinesIt mines gold mostly in Canada, Finland and Australia, places with fewer political surprises, which makes it a steadier way to own gold through a long inflation stretch., Wheaton Precious MetalsIt pays miners a fixed price per ounce for gold and silver, so when metal prices climb its profit widens and rising mining costs fall on the producers, not on it., Freeport-McMoRanIt is one of the largest copper miners with gold on the side, and copper gets pricier when inflation runs hot and supply stays tight.19%
- Land, trees and crop inputs are real assets that tend to reprice upward when money loses value, and rental income can climb with crop prices. · NutrienIt sells the potash and fertilizer farmers need to grow more when crop prices get expensive, and demand follows food price inflation., WeyerhaeuserIt owns millions of acres of timberland, a physical asset that held value through the nineteen seventies as inflation ran hot., Farmland PartnersIt owns farms and rents them to growers with rents that can climb with crop prices, and US farmland values soared in the nineteen seventies as crop prices rose.12%
- Inflation-protected ballast · Vanguard Short-Term Inflation-Protected Securities ETFIt holds short-term inflation-protected Treasuries that adjust principal with consumer prices and barely move when interest rates rise.10%
- Cash8%