Be prepared for a period of stagflation in the US, a Wall Street veteran warned an audience of asset management professionals in Southampton yesterday.

Joesph McAlinden said inflationary pressures in the US are building up and this is likely to lead to multiple interest rate increases by the US Federal Reserve next year.

Mr McAlinden, founder and chairman of MRP and its parent company, Catalpa Capital Advisors, and a former chief global strategist at Morgan Stanley Investments, said he believed the best opportunities in investing come about through spotting unexpected changes early.

Trends he expects include a combination of rising inflation alongside slow growth, or stagflation, rising energy prices and a sustained boom in residential construction.

He was speaking at the Global Fund Forum at the Fairmont Southampton resort, an event that has attracted around 220 hedge fund industry professionals and investors.

In more than 50 years in the money management business, Mr McAlinden said it had become evident to him that “unexpected change is the biggest driver of opportunity”.

Identifying the changes sometimes meant being a step ahead of the “experts”, he added, who are reluctant to accept what is commonly referred to today as disruption, but what Mr McAlinden terms “discontinuous change”.

“There are three stages,” Mr McAlinden said. “First the change is rejected by the experts, because it challenges what they said yesterday. In the second stage, they say it happened but it’s not important. And in the third stage, they say this was a major game-changer and we knew it all along.”

He gave the example of colour television manufacturers, who were in such a sweet spot of change after the three major US networks had all started broadcasting in colour in the mid-1960s.

Re-emerging inflation will be one of the greatest trends for investors to be aware of in the coming year, Mr McAlinden said.

“There are enormous inflationary pressures on the US economy already,” he said.

The Consumer Price Index showed inflation had risen from zero to around 1.5 per cent over the past year, he said. But services, which make up around three-quarters of the US economy, already had a 3 per cent inflation rate, but the impact was being masked by a negative inflation rate for goods.

One of the reasons for this was the plunge in the price of crude oil to around $28 a barrel early this year — yesterday it was trading at around $50. If the oil price remains static, the inflation figures during the winter will reflect a 70 to 80 per cent year-over-year increase in the price of crude oil.

With a tightening labour market — US unemployment is down to about 5 per cent — and wages already growing at a 2.5 per cent clip, the stage is set for inflation to pick up quickly.

The US Federal Reserve will likely respond by raising interest rates at its December meeting, Mr McAlinden said, and probably three times in 2017.

“We’re going to see higher bond yields and in time that would be a positive thing for insurers,” Mr McAlinden said. “In this environment, with a cautious Fed and a steepening yield curve, commercial banking will also be a beneficiary.”

Mr McAlinden also expects the oil price to rise, a call he first made late last year, as the world is “set up for a shortage of supply”.

“Everyone has cut back on exploration and production and capex has plunged,” Mr McAlinden said. “That’s not something you can turn around overnight.”

Most of the oilfield laid-off workers had found other jobs and with a tight labour market and it would not be easy for US producers “turn on the spigots” again, he added.

Mr McAlinden expects crude prices to be in the range of $60 to $80 over the next year or so, but he added: “I would not rule out a run at $100.”

On house-building growth, Mr McAlinden said the US had historically built around 1.5 million residential units per year. He expects that number to be 2.5 million to 3 million in the coming years because of pent-up demand from millennials, whose opportunities have so far been limited as they came of age during a recession and have faced a lack of job opportunities. That is changing now.

“Since last December, job growth for millennials has been surging, because employers are running out of older, more experienced people as baby boomers leave the workforce,” Mr McAlinden said.

He estimated that a deficit of 4 million to 5 million units had built up, meaning the building boom could last longer than in a normal cycle, supporting strong growth among home builders and related industries.

Mr McAlinden’s presentation came after introductory remarks from Michael Dunkley, the premier, who spoke of how quickly after Hurricane Nicole the island was able to resume business as usual.

“Just as Bermuda has proven a safe haven during storms, the island provides business with the comfort that assets and interests are protected in a corporate environment that fulfills the highest global standards,” Mr Dunkley added.