Be cautious! A new wave of inflation may be on the way

David Einhorn, president of Greenlight Capital, stated that the election results are good for avoiding the political stability issues he was recently concerned about, but for the economy, there will be a bigger problem as he expects Trump's second-term policies to bring higher inflation.

"We have increased our bets on inflation," he said on Wednesday. "We expect another upward inflection point in inflation; the proposed policy mix of the Trump administration is inflationary, and we will see more of this in the coming years."

Einhorn predicts that inflation could rise to 3.5% to 4.5%, but will not return to the worst levels of 7% to 9% seen in the U.S. economy over the past 40 years.

The latest CPI data released on Wednesday showed that the year-on-year growth rate of the U.S. CPI in October was in line with market expectations at 2.6%. The latest PPI data released on Thursday also met expectations.

Einhorn's concerns stem from all the tax cuts Trump hopes to pursue. Even if he does not pursue all tax cuts, or Congress refuses to pass all tax cuts, the combined effects of a strong economy, wage growth, and immigration policies that lead to inflation (from both cost and labor perspectives) will result in "a series of inflations."

He said, "I don't know how they will choose to respond; one view is to tolerate it and keep the economy as strong as possible. I really don't know what they will do."

Einhorn stated that although he recently talked about how expensive he thinks the market is and sees himself as one of the last value investors in a "broken market," he is not pessimistic about U.S. stocks. He likened himself to a mechanic and revealed that he is betting on a battered agricultural stock, which he believes is one of the last bargains in the market.

Nelson Peltz, CEO of Trian Partners and billionaire investor, expressed that while he is pleased with Trump's victory and views the Harris administration as a disaster, the market rally will not last, and the extreme concentration of a small group of high-momentum stocks is a contributing factor.

Despite facing unexpected pressure on U.S. Treasury yields in a Federal Reserve rate-cutting environment, Einhorn stated that the bond market has not yet begun to price in the "difficult Treasury yield situation," which is due to his concerns about Trump's expansionary economic policies.

Anne Walsh, Chief Investment Officer of Guggenheim Partners Investment Management, also mentioned this specific concern, predicting that U.S. Treasury yields will continue to be under pressure due to factors such as worries about tax cuts and deficit spending, and that the bond market will experience higher volatility than stocks, a situation that may persist for several years