Listening to Canonbury Group president Dr Philippa Malmgren speak at the recent MLC Implemented Consulting conference in Sydney, one could be forgiven for thinking the Cold War has never ended.

In a presentation that promised to explain the influence of geopolitics on investments, Malmgren revealed the world was facing a new arms race between the United States and China.

In a tale that took the audience from nuclear submarines to Chinese data tapping devices disguised as routers to target practice on old weather satellites, Malmgren impressed on her audience that people should be concerned about the Middle Kingdom's display of military strength.

What has this to do with stocks? Well, according to Malmgren, US companies were smack bang in the middle of the stoush and that would affect international equity portfolios.

Apparently, the kerfuffle between Google and the Chinese government is not about conflicting views on freedom of speech, but rather about national security.

"We cannot afford to invest in equities where we don't understand how the national security interests will hit these companies," Malmgren said.

Her obsession with military might, espionage and infiltration becomes a little more understandable with the knowledge that she was a senior adviser to former US president George W Bush, but one could still not help wondering what she was doing in Sydney.

Apparently, she had just attended a central bank symposium in Jackson Hole, Wyoming, and was ready to share the discussions she had with Federal Reserve officials with the audience.

Armed with the latest insights into the US economy, Malmgren told her audience the world was to face an even bigger threat.

But here she disappointed somewhat.

She did not reveal an impending intergalactic war or killer virus about to wipe out the human race.

No, the biggest bogeyman of all was inflation.

The fall of the Berlin Wall brought about a 25-year period where inflation had moved in a modest bandwidth, a period she referred to as the Great Moderation.

Inflation as a risk to portfolios had been forgotten, but now the world should brace itself for a return of the monster.

"That was part of the driving discussion at Jackson Hall: now that the Great Moderation of inflation is over, how long do we have before inflationary forces begin to make themselves apparent?" Malmgren said.

Luckily, she did not hold her audience in suspense for too long.

Inflationary pressures were already here, she said. We just cannot see them.

"Food prices have been jumping very rapidly in the last 18 months, but food and energy are not included in CPI (consumer price index)," Malmgren said.

Inflation will snowball as countries increasingly fight over access to food and this will impact on investment returns.

"Real returns are going to kill your portfolio," Malmgren said.