IGWT 2022 at Macro Voices

Stagflation 2.0

When the leitmotif for this year’s report was selected, no one realized how prominent the topic of stagflation would be at the time of publication. The term was first used in 1965 to describe an economy in which economic output is shrinking and inflation is elevated. However, since the general definition is very vague, we have drafted our own. According to this, the economy suffers from stagflation when year-on-year real economic growth is less than one per cent and inflation exceeds three per cent.

Lost its shine?

Gold had a spectacular year in 2020, but it disappointed many by performing poorly in 2021 after that. Many factors played a role, a strong dollar, good equity performance and the omnipresence of cryptocurrencies, to name a few. Now it all depends on whether central banks actually drastically raise interest rates and drastically reduce their balance sheets. The signs are not good. We suspect a turnaround in the third quarter of this year at the earliest. This would also be the moment when gold should start to shine again.

Inflation is soon over again!

Inflation is here and what Paul Volcker did in the 70s to fight it is, as he said before his death, no longer possible. Massive interest rate increases, which can realistically fight inflation, are therefore not expected. However, we expect several waves of inflation. We may have already seen the high of these first waves. But the pressure remains high. The West’s sanctions against Russia and the general decline in globalization should provide a solid foundation for inflation for many more years.

Recession ahead?

Many institutional investors are still firmly convinced that a recession is not imminent. It should be noted that only three of the 20 Federal Reserve rate hike cycles historically have not ended in recession. And even though the cycle hasn’t even really begun, we are already seeing drastic dislocations in the stock and bond markets. So, if the Federal Reserve stays the course, we expect a major recession or even a depression.

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