The deliberate robbery of savers
Talib Sheikh, senior fund manager at Jupiter, does not mince his words: The inflation policy is at the expense of savers. And he doesn’t even want to buy government bonds at the moment.
Dhe monetary policy has changed radically with the corona pandemic. Talib Sheihk, head of the multi-asset strategy department at asset manager Jupiter, even speaks of a “generational shift”, comparable to the abandonment of the gold standard in 1971 or the beginning of the high interest rate policy at the end of the 1970s. “On the one hand, the central banks have admitted that they are unsure of being able to predict inflation and are therefore now running it in the same way as the labor market. Second, they have allied themselves with governments to try to beat the inflation target. It’s a radical change. ”The narrative has changed, deficits and spending cuts are no longer an issue.
Didier Saint-Georges from the strategy committee of asset manager Carmignac shares this view. The printing of money in the past ten years has never been inflationary because the money has flowed from the central banks into the balance sheets of the commercial banks and then back to the central bank in the form of excess reserves. This time it is radically different: The money flows from the governments into the pockets of the consumers. With the checks from the American state to the consumers, the helicopter money will be realized, says Sheikh. Basically, this policy is not without danger. “It is always questionable whether higher government spending will bring more productivity and whether this will generate growth and inflation. I don’t know if this will work, but they will do everything possible. “
Sheikh is therefore struggling with a longer-term outlook. On the other hand, he is pretty sure how the economy will develop in the next six to twelve months. In the first half of the year, inflation will sometimes reach double-digit rates in the United States and 5 to 6 percent in the euro area. What people forget, however, is that recovery from a recession is usually very quick. The development after the financial crisis was an exception because at that time the very important financial system was ailing. The end of the cycle could therefore already come in summer this time, also because the recession also happened very quickly. This will not result in a bear market, only a return to a lower level, including inflation rates. Saint-Georges seems a bit more pessimistic here: potential growth has continued to decline over the years and these long-term trends have not suddenly disappeared. Together with higher taxes, a kind of stagflation could be imminent.
Buy government bonds only when you have to
“Even with inflation rates of 1.5 or 2 percent, real interest rates are negative,” says Sheikh. “That also means that future purchasing power will decrease.” This is often referred to as “robbing savers” – and that is correct. “That is exactly what central banks and governments want, namely in this way to devalue the debt that has risen sharply in the pandemic. I don’t know if they will succeed, but they will try. ”Interest savers, however, are still better off than those without savings whose real wages are falling. The lowest income quintile suffered severely recently. The central banks are also aware of this, which is shown by the fact that the American government is increasingly turning its attention to unemployment among people of black skin color and of Latin American origin.
Creative thinking is now required when it comes to investing. The Germans in particular would have to give up their views on interest savings and government bonds. Given the rising inflation rates, investment grade corporate bonds would also bring real losses. “And government bonds are a terrible investment right now. You only buy them if you are forced to. ”Income is more likely to be achieved through stocks or high-yield bonds. Stock markets may be in a central bank-driven bubble, but valuations are less relevant to when the cycle climaxes, says Sheikh. “But it is important to be selective about regions and industries.” The stock market developed very unevenly. Much is very expensive, but a lot is also very cheap. However, Sheikh does not believe in a rally in value stocks. He is more likely to see assets that bring quick returns, such as bank stocks or cyclical stocks, at an advantage.
For diversification, the multi-asset manager relies on currency investments instead of bonds or futures contracts on price fluctuations. Yes, convincing customers is necessary. “But they only have two options: Either to follow this path or not to do it and accept that their income will be at least halved.” Because Sheihk does not expect the applications of traditional funds based on distributions to recover. Major changes in the portfolio are necessary to tap new income streams, for example from corporate bonds from emerging markets.