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.
The Return of QE
QE's resurgence seems likely as economic fundamentals are aligning. While inflation is still high, it's declining rapidly, prompting some central banks to take action before it hits 2%. Although QE causes long-term inflation, the imperative to revive the stuttering global economy is immense, indicating favourable times for risk assets.
How Terminal Is Terminal?
Consumer expectations suggest a recession is imminent. Labour market statistics paint a very different story. Who should you trust, and which numbers should you focus on, if the aim is to second-guess the Fed and how much higher the policy rate is likely to go?
One Year On
The war in Ukraine is now in its second year, and you probably wonder how the war will affect financial markets this year. Another year of high energy prices? Continued high food price inflation? Is there finally a recession coming? Anything else to worry about, particularly a nuclear escalation?
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?