Commodity Investment Update

Tavis’ recent commodity update focuses on how to build 'recession resilience'. For multi-asset portfolios, this exercise is essential for the rest of 2023 because recessions during military conflict are unique creatures. A stagflation crisis is never an outlandish scenario in times of war. Indeed, "geopolitical inflation" risk will continue to linger in the background for many quarters, if not years.

Although commodity prices have declined since last summer, a deep disinflationary or even deflationary shock remains unlikely. Indeed, the risk of 'inflation fight' fatigue has only increased since the recent bank turmoil, as the interest rate necessitated by the anti-inflation push turns out to be higher than today's banking system can stand.

At the same time, the confrontation with the anti-Western block (Russia, China, and Iran) and the corresponding militarization of world politics is increasing the risk of an inflationary recession manifold. Investors should, thus, not make the mistake of automatically equating the coming downturn with accelerating disinflation. It is not 2020 anymore. In the past, oil prices managed to rise during a recession (1973/75, 1980, and 1990/91) and can do so again. And so can inflation.

We argue that it is time for investors to assess their sensitivity to this unusual recession risk in 2023 and take steps to protect their portfolios. Equity investments do not perform well during recessions of any sort. Bonds also fail to be beneficial during stagflation shocks. In contrast, investors can achieve resilience via a prudently designed commodity allocation. The time to identify the vulnerabilities of traditional strategies and devise stagflation-centered solutions is now.