Inflation is the monster to fight. And the financial markets fear it like death, because if crashing into a truck is the end for us, even for financial assets, the increase in prices is the end. Especially when someone around begins to say that in the US (and in the rest of the world, because if the US has a cold in Europe we get pneumonia) inflation is “de-anchored” or “wild”. Usually the transmission of inflation starts from producer prices (which in Italy mark a terrifying + 30% trend) and moves on to consumer prices (which are still below 10% in Italy). Having said that, it is clear that the reasons for the credit crunch that is being announced around the world are well founded. Years ago the problem was that inflation was stably below 2% and now the problem is the opposite because for the next few years it will be stably above 2%. If you ask me what the normal world is, above or below 2% I can’t tell you, because we have gone from the abnormal world of too low rates to the abnormal world of too high rates (we’ll get to that shortly).
In the US, the real estate market is beating ahead as house prices were now out of control. In Miami, I was offered a 150-square-foot ocean view apartment with a new pool (to be finished) for $ 200,000 in 2009. Now they tell me it costs 10 times that price. In the face of our cities with prices ranging from 1500 to 2000 euros per square meter.
Mortgage rates have gone from 3 to more than 5% over 30 years in a few months and the prices of a single unit of home up to $ 420,000, when the norm in recent years was around $ 250,000. If the increase in rates serves to bring inflation back to a “normal” level, it is welcome and together with it a stop to the real estate market which is now out of control (in the USA at least).
Unfortunately, sometimes central banks do damage because the perfection is of the skies and not of the earth and by raising rates they slam the economy into recession. This is what the markets fear. And to this is added the war in Ukraine with Putin’s devastating assertions at the St. Petersburg meeting. We will see the consequences in the long run, especially since the Ukrainians do not want to sit at the peace table. If you look at some interesting youtube channels made by former Ukrainian officials with first-hand information you will learn that the intentions of the 3 European leaders in Kiev last week were the opposite of what they told: Kiev must accept the loss of territories. Immediately after other news that the US will not give Hellfire missiles for fear that they will fall into the hands of the Russians or that the Ukrainians still do not know how to use the highly sophisticated weapons that have already been delivered (artillery targeting systems for example) . In short, if you think as a disinformation expert you understand that something has broken by Westerners because for the moment we laugh and sleep peacefully with Eni which ensures that we do not have to worry but the winter is advancing and Tomasini has already bought the stove. pellet with 100 bags of the precious fuel.
A senior Ukrainian army officer said Ukraine will be ready to negotiate in late August when it recaptures Kherson where Ukrainians are 10km from the city center and throw leaflets assuring “we are on our way”.
I don’t know militarily speaking if all this makes sense. Surely Europe cannot afford a cold winter on pain of the deindustrialisation of Europe itself with the industries of the old continent at a standstill (the Chinese would enjoy it a lot and this would worry us).
I know that the closer we get to winter, the more pressure will increase to end the Ukrainian conflict: how many dead is Europe willing to bury in Ukraine in order to eat pizza in November? It seems many given that 42% of Italians are now opposed to sending weapons to Ukraine. The first series is deported and better for all of us that we can continue to eat pizza.
If we look at how much the stock exchanges have lost (in the image that follows the graph of the SP500 collapses) we see how this fall in the stock exchanges is of a numerical importance similar to that of the other crises that have occurred in the last twenty years:
And as they say in the jargon the darker the night the closer the dawn is.
In fact, if we look at what happens after the stock market crashes in the following table we see that they are all positive returns. It is the Dip Buying strategy or buy when the shares have collapsed. Will it work now too?
The downside targets, placed on the pre-pandemic highs, have been achieved by almost all the indices or we are still missing a few percentage points. And last Thursday and Friday, Wall Street did not plummet.
Are we at the bottom?
If you want to know more you can watch the video recording of my webinar last Friday (Click here).
For the moment, let’s console ourselves with some stocks on the Italian Stock Exchange which, like ham, everyone always likes:
(Paolo Braglia collaborated)