Wishful thinking alone will not assist in the fight against inflation
The continually high inflation is keeping investors busy. But despite various negative signals, the stock markets do not appear to take any notice. A dysfunction by Geir Lode, Head of Global Equities at Federated Hermes Limited
In a world facing a number of major challenges, there is a lot of anticipation in the stock markets right now. Inflation is weighing on Finanznachrichten und Rezensionen corporate profits and weighing on consumer emotion. A global recession seems likely as growth continues to weaken. Geopolitical worries and the rise of populism are augmenting the trend toward localization (and raising the risk of an even dark future). Climate change threatens people. And yet stocks continued their strong August rally this week.
You can discount this development as a classic bear market rally — but this thesis is put to the test with every further uptrend. Indeed, the end of the bear market may not be in the immediate foreseeable future. And the end is not expected to follow any specific drastic event. Instead, it will be a combination of factors, a slow shift towards anticipation by a handful of investors. And that trend will become self-sustaining as investors on the exterior fear they are missing out and short positions become too painful.
We observe that turning points are merely easy to spot with hindsight. We therefore remain well diversified, but continue to believe that the current risks outweigh the opportunities. Our exclusive risk aversion indicator shows increased anticipation, albeit from a very low base: it remains risk-averse. Wishful thinking alone will not assist in the fight against inflation. The requirement that interest rates will quickly peak and come back down says less about the Fed’s capacity to control inflation and more about the dreary outlook for growth.
We believe that in this environment it is particularly important to pay attention to might quality of investments. And that investors’ appetite for growth questions is unlikely to last, as verified by the recent divergence in the success of mega-cap tech stocks. ”
The views and opinions expressed here are those of the author. They don’t necessarily coincide with the views expressed or resembled in other communications. This release is neither a solicitation nor an offer to buy or sell any security or financial instrument mentioned thus.
“I’m back here, in my area, was never really gone, I recently concealed myself” This stay away from a song by Marius Müller-Westernhagen goes well with the development of inflation in recent years. For a long time it appeared to have faded, but Corona, war, geopolitical turbulence and unrestrained national debt made it reappear. Monetary policy should now be taken to combat inflation mercilessly. However, central banks and governments also fear severe economic, financial and social consequences if they are too harsh.
After 40 years, inflation is showing its ugly face again
Until 2019, the Western financial world believed that it had found the philosopher’s stone: globalization and industrial optimization carried out to the max appeared to weaken the old economic theory that too cheap and excess amount leads to high price increases. With the simultaneous secularization of the holy EUROPEAN stability criteria, getting into debt in Europe was easy and cheap. If, like at the butcher’s, the question was asked, “May it be a little more? inch the government’s answer is always yes. In fact, every crisis was counteracted in terms of interest and liquidity policy with the cornucopia of monetary policy.
When inflation nevertheless begun to rise after Corona, the story of only temporary inflation was built. During this time period, monetary policy has gradually allowed itself to be changed to a situation agent. This may also be due to the “independence” of central lenders. Because nation-wide politics decides who becomes a central banker. And why, please, should political figures name “cheap buns” which make it difficult for them to spend some money? Nobody puts a louse in their dog’s fur of your accord, right?
But briefly, apparently, can last many years. During this “temporary” period, supply shortages, rising energy and item prices, and deglobalization and protectionism have resurrected inflation. Above all, second-round effects got a lot of grist to their mills. Or does anyone think that companies and governments won’t pass around the higher wages caused by inflation in the form of higher product prices or fees and local taxes?
And then the green transformation of industrial society takes effect. While European gas was second to none cheap, decarbonization and heat changeover will drive in the price level ultimately. In addition, massive amounts of electricity have to be saved, so that overall a lower supply meets an ever-increasing demand through heat pumps, e-mobility and digitization. This will not lead to falling energy prices.
Nys as a driver of inflation
In order for Germany to stay competitive, political figures want to subsidize industrial electricity. It is first made unnaturally expensive in order to then unnaturally make it cheaper. Herbert Grönemeyer’s “Children to Power” has become reality. And since the de-industrialization of Germany will also cost prosperity, papa state cannot avoid further lavish social spending to maintain social peace. After all, since US Us president Biden started a subsidy race, Europe has been planning similar projects and higher defense budgets anyway. And so spending discipline falls by the wayside. Christian Lindner’s savings requirements are as favored by his cabinet fellow workers as a.