David Mazza, Managing Director and Head of Product at Direxion, joins Cheddar News to discuss how commodities could serve as an alternative for investors and help to diversify their portfolios.

Opening Bell

How to Attack Inflation With Commodities

in our next segment trader nation brought to you by direction E. T. F. We explore how investors and traders can position their portfolios for the future with directions, expanded suite of E. T. F. Alright stocks are climbing on this Wednesday. This comes ahead of day two of a highly anticipated Fed meeting to gain control of rising inflation. The meeting is being closely watched by investors amid a string of troubling inflation reports which showed consumer prices up 8.6% since last year, the biggest jump in over 40 years joining us now Dave Maza, managing director and head of product at direction. We're just about the halfway point Through 2022. Dave and nearly every asset class is down. Can you break down just how hard this is hitting investors right now? A little bit of a bright spot today because futures have been pointing higher markets open just a bit higher. But tell us more yeah, it's good to see a bit of a reprieve in the market. So it's been a difficult sledding out there across really every asset class and I think that's what most investors are not, have not seen for decades because this is a bit unprecedented right. Worst ever start to fixed income going back to since the broad based originally the Lehman and now Bloomberg aggregate index was created the worst start of the S. And P. 500 since 1962. And this is coming on the heels of really inflation numbers that we haven't seen in decades. In fact 40 or high for the most recent C. P. I. Print even cryptocurrencies which is an area that many folks were pointing to as an area that was going to help hedge against inflation has been the furthest from that. The one area that we have seen positive returns has been commodities. And that's really an area that what we, from what we can tell is kind of serially under owned by investors, whether it's retail or institutional. Yeah, you mentioned commodities as kind of the only silver lining for investors so far this year. Do you expect that pattern to continue moving forward because they are serially unknown by investors? I think there's two things that's going to really support commodities broadly going forward. One is that when we go through these difficult periods of the market, investors look for new areas that maybe they were missing. And some people could say, well are you buying insurance when the house is already on fire? And I'd say not really because the the forecast that we're going to see for inflation are not going to come down in the next month. So even if the Federal Reserve would have raised by 100 basis points today, which is not my base case and really not the market space case, it's not going to impact the june CPI I numbers that come on in july, it's going to take some time if not months for that defeat to the system. So there's still an opportunity for investors to look for areas to diversify their portfolios, which in this market are things that are real assets that actually benefit from rising prices and commodities are one of those areas. And in addition to your point that this is their support for the space, it's not as if everyone's been loading up on this and now it's time to actually exit because they've been so under owned that the flows into the space are actually support prices as well. This is really good information. I have looking for new areas for a lot of investors out there. These are real assets and those that benefit from those rising prices that we're seeing this inflation. Um and to that point obviously you don't have a crystal ball, but if you had to predict, how long do you think these kinds of macro economic headwinds are going to persist moving forward? Well look, I think what we're finding ourselves is that the Federal Reserve is a bit behind the curve here, because now they're actually gonna have to hike into one a bear market in stocks and potentially slow down economic growth on a going forward basis. So I think first and foremost, we have the potential of being sort of a new regime, meaning the last 40 years, we're just interest rates for trending down may not be the case anymore because we now have real inflationary pressures globally, we're seeing disconnected from globalization, meaning more on shoring, um as opposed to just offshoring and things of that nature. So this is a difficult market to navigate. And that's one of the areas where we think, you know, again, investors need to be thinking about particularly long term investors thinking about how to set their portfolio up, not just for the next month or or or three months, but what does, what does that, what does the big picture look like? And areas that have kind of that that stable demand profile from commodities, particularly commodities that are more staples in american households can be beneficial. Yeah. And as you talk about setting up your portfolio for the long term for investors, can you also speak to the economist perspective when it comes to viewing inflation and seeing that change really in real time, potentially increasing in some areas and hopefully with this monetary policy from the Fed starting to come down soon. Yeah. So what's also interesting is that, you know, I think the word unprecedented was probably one of the most overused things we first heard in the COVID-19 pandemic. But you know, the market returns this year are truly unprecedented. And what I think is also interesting is that if we look at city publishes a measure called the inflation surprise index and it's it's actually relatively simple. It looks at what is the actual reported inflation relative to what economics uh excuse the economists forecasts were in that particular period and the differential there is, it's literally off the charts because the forecast for inflation keep coming in higher than expected on a month over month basis. And now, of course, at some point, forecasts will begin to catch up. We're already seeing that, um, but 8.6% C. P. I is a far way away from the Fed's preferred 2% inflation number. It's gonna it's gonna take some time for for for that to make its way through the system. So I think, you know, we need to be prepared for these increase in prices persisting for for months, um, because it's just, it's just very difficult for for that to change on a dime and overnight. Yeah, safe to say that transitory where it still haunts us to this day and it's not transitory. And before we go, you spoke really heavily about commodities and other real assets. Any other advice for investors right now and how they can diversify those portfolios again for the long term you're expecting inflation to persist around for the next few months. We've had a lot of clients come to us recently looking for unique opportunities in to fight to bolster their portfolios and fight against the inflationary pressures. You know, an area in particular that we think could be interesting years, what we call breakfast commodities. So these are staples in american diets, they have very stable demand profiles, but the supply, whether it's wheat and the issues with the war in Ukraine coffee. The issues with, with droughts in brazil actually are causing their prices to increase very fast food prices rising, the fastest they've ever had. If you look at the UN's food Price index, it's the highest it's ever been since they've looked at that. So we really have a real challenge here from a food scarcity perspective. And that's one of the reasons why we launched the Direction breakfast commodities E. T. F. The takers B. R. Ky, which allows investors to diversify their portfolios to breakfast commodities. Really interesting stuff, appreciate all of your insight as usual. That's Dave Maza, managing director and head of product at Direction. And to find out more about how Direction E. T. S enable you to seek profit and manage risk in all market conditions, visit Direction dot com and before investing carefully, consider a fund's investment objectives, risks, charges and expenses contained in the prospectus at Direction dot com. Read carefully everyone