The Perfect Trade To Profit From “Shrinkflation”
In a statement after last week’s meeting, the Federal Reserve indicated the fight against COVID could dictate the tactics in their long-running battle against inflation.
The statement noted:
Progress on vaccinations has reduced the spread of COVID-19 in the United States. Amid this progress and strong policy support, indicators of economic activity and employment have strengthened. The sectors most adversely affected by the pandemic remain weak but have shown improvement. Inflation has risen, largely reflecting transitory factors. …
The path of the economy will depend significantly on the course of the virus. Progress on vaccinations will likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain.
This helps to explain why the Fed continues to argue that inflation is transitory and will fade quickly. If the pandemic caused the price pressures we see right now, they should ebb as the vaccination rate continues to rise.
At the current rate, Bloomberg estimates the United States will take five months for 75% of the population to be fully vaccinated.
By that time, it’s possible inflation will be significantly higher. But the Fed is most likely more comfortable with high inflation than consumers. That’s explained by the next chart.
Source: The Wall Street Journal
In this chart, the straight line shows where inflation would be if we experienced inflation of exactly 2% a year. We are 23.6% below that line. If prices jumped 30% over the next year, the Fed could argue inflation is merely reverting to mean… while consumers would be devastated.
Why This Matters — And How It Affects Our Trades
This is a serious risk to the stock market. While the Fed hides behind theory, consumer sentiment could drop, and that would lead to a selloff in stocks.
Because I believe inflation is a risk, I recently recommended a trade in a company that delivers products that are needed by consumers under any conditions.
Unilever PLC (NYSE: UL) sells products that consumers need around the world. Its lineup includes beauty and personal care brands: Axe, Dove, Suave, TRESemme, and Vaseline brands. Its food brands include: Ben & Jerry’s, Breyers, Knorr, and Lipton. The company also makes cleaning products.
You may have heard of a term called “shrinkflation”. You may have even noticed it yourself. This is where a company will shrink a product size if necessary to maintain market share in the face of inflation. In fact, UL’s competitors already have shrunk product size in some cases. For example, a pint of Haagen-Dazs ice cream only includes 14 ounces while Ben & Jerry’s still delivers 16 ounces in a pint.
UL is also expanding into new markets. Last week, the company announced a deal to acquire Paula’s Choice, a direct-to-consumer beauty products company that has a significant online presence. This could allow UL to scale its online business and makes the company a potential growth stock.
The point is that companies like UL can respond quickly to inflationary pressures, and that’s where I want to focus my trading right now. And thanks to the trading strategy we use over at Maximum Income, we can also respond quickly to the market with our UL trade…
Where most traders will take the macro-factors I outlined above and arrive at a trade target like UL, many will simply buy the stock and hope for the best. But over at Maximum Income, we can not only own the stock — but generate immediate income…
This strategy works well in times like this. It can be used to take charge of your portfolio and quickly respond to what the market throws at us. We not only earn income right away, but we also have the chance to repeat similar trades again and again, boosting our income even further…
This strategy works like an “insurance policy” on your portfolio. It’s one of the most effective ways for you to hedge risk — while making a substantial amount of income in the process.