December 4, 2023

CNBC’s Jim Cramer said Thursday that investors buying stocks that benefit from an inflationary environment should be aware that price pressures may not continue, underscoring the need for portfolio diversification.

This has become a very popular trade right now, the Mad Money host said, as money managers followed what he called “the hedge fund game book.”

“In this game book, it’s very clear what to do when you start getting inflation in a fast-growing economy: buy the inflation winners at any cost and drop everything else,” said Cramer, himself a former hedge fund manager .

Some of those stocks are obvious, like mining company Freeport-McMoRan and steelmakers Cleveland-Cliffs and Nucor, according to Cramer. He said industrial giant Caterpillar is on the list alongside oil companies.

Bank stocks have also become popular despite inflation concerns because “this is not a traditional inflation boost,” said Cramer. Typically, this can cause problems for the financial industry.

“Right now, raw material prices are rising due to short-term considerations: tariffs on sawn timber and steel, an energy policy that prevents new oil wells, a superstorm that has destroyed much of our plastic capacity, a terrible chip shortage, a persistent port congestion, rising and higher labor costs fueled by more generous ones Unemployment benefits that may make it better not to work than to work, ”Cramer said.

That makes banks “an excellent hedge for now,” he said, because if inflation continues – rather than temporarily, as Fed chairman Jerome Powell repeatedly predicts – the central bank will respond by changing the rate Interest rates increased. That in turn would help the banks, said Cramer.

“To be honest, I’m not crazy about this type of investing,” he warned. “I am increasingly convinced that Powell is right – the inflation we are dealing with will be temporary. It will happen when demand picks up again and supply takes a while to catch up.”

Ultimately, said Cramer, he expects the causes of inflation to subside.

“Of course you can buy these inflation winners, but remember that this type of action is more temporary,” he said. “There is only such a high price for copper or steel before the whole thing corrects itself. And when it does … you will wish to have more than just the glowing supplies of minerals, oils and oil banks. “

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