Superior investment results require that you deviate from the norm. In our monthly Absolute Return Letter (ARL) we share our out-of-the-box macro view of the world and corresponding megatrends. Subscribers get the letter straight to their inbox about 1o times a year.
Is the Bubble About to Burst?
Last year turned out to be a brutal wake-up call for all those who thought inflation was a thing of the past. Property prices, for example, are expected to struggle as mortgage costs rise, and the value of property makes up a huge chunk of overall household wealth. Therefore, you should expect wealth-to-GDP to continue to decline in 2023.
The R Year
Three issues stand out, as we enter a New Year – (i) poor economic performance in many countries, (ii) the war economy dragging out, and (iii) poor compliance with the 2015 Paris climate agreement. The net effect of those three issues is another challenging year for financial markets, particularly equities.
2022 vs. 1979
What can we learn from the Volcker years?
Volcker was appointed by President Carter in August 1979 with the specific mandate to get inflation under control, which he eventually did but only after introducing some pretty extreme measures. What can Jerome Powell learn from that? Actually what can we all learn from that? Most importantly, that 2% inflation is still far, far away.
Deforestation of Magic Money Trees
By not taking the inflation ghost seriously enough for too long, the Federal Reserve Bank has ended up in the unenviable position of having to make compromises on its twin objectives – price stability and full employment. This has material implications for monetary policy and therefore also for financial markets. What is likely to happen next?
The Rise of Wealth-to-GDP
… And the Long Road to Normalisation
US wealth has grown dramatically since the mid-1990s, resulting in a rise in US wealth-to-GDP which, as of the latest count, is 578%. This is still much higher than the long-term mean value, which is only 380%. The theory suggests that, sooner or later, we will come back to that mean value again. What does that mean?
The House of Cards
Another general election in Italy is coming up, and the Italian house of cards is at risk of collapsing again. Will the new Prime Minister exit the EU as she has threatened to do? What would be the consequences if Italexit is suddenly a fact? The Italians, who are not exactly novices in political drama, could be in for a few rather tense months.
The End of Indexing
Have we finally arrived at the point where passive investing no longer makes sense – a regime change so to speak? From a fundamental point of view, yes, but investor psychology can play games with logic for much longer than most investors realise, as the Japanese found out in the late 1980s. Is the day of reckoning for most risk assets on its way?
Is Gold the Answer?
Could gold provide the answer if you wish to protect your portfolio against out-of-control inflation? The short answer is yes but probably for a different reason than you may think. And then there is silver. It may not offer the same protection against inflation as gold does, but we could still be entering a very benign period for silver prices.