Markets have generally weakened as investors continue to absorb a plethora of bad news. Despite expecting inflation to be ‘transitory’, all major central banks are now not only tightening monetary policy but signalling that further rate rises are embedded in their thinking. It’s a pity their hopeless misreading of inflation has resulted in such a panicked response when the background of Putin’s invasion of Ukraine now aggravates so many pressure points; food and energy being the most obvious. But, this is what happens when you spend decades doing what you want to do rather than what you should do. Constant central bank intervention, designated to keep the cost of money artificially low has a cost and it is now clear what that cost is. They either control inflation and create a deep recession or pass on the former in an attempt to avoid the latter. We are not in the camp that expects the first. We suspect they’ll flunk this test, as they have every other and anticipate ‘stagflation’.
None of which is usually what investment dreams are made of but with money currently losing close to a tenth of its real value on an annual basis and sovereign bonds doing little better, inflation protection remains the number one priority. And from our long term perspective, that means the shares of superior enterprises that possess durable pricing power.