Expect an Increased Focus on Capital Allocation, Quality and Sustainable Free Cash Flow
Until recently, we had been in a disinflationary environment since the 1980s, when Volcker helmed the Fed. This secular trend reflected three forces: (1) Correcting the policy mistakes made in the ’60s and ’70s that stoked stagflation, (2) the increasingly globalized nature of trade, investment, and finance from the mid-1980s, and (3) the deflationary impact of tech, which has been especially impactful during the last two decades. While the latter factor remains in place, we believe it is being overwhelmed by the 3Ds — Deglobalization, Demographics and Decarbonization — meaning we have entered a secular reflationary environment.
The remainder of this note briefly explains each of the three Ds and then concludes with a discussion of what all this means for investors.
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