Han Dieperink

Rising house prices, records in the stock markets, extremely expensive bond markets and a new high for bitcoin have caused the total assets of American households to rise by an unprecedented 20 percent in one year. That is more than the total GDP of the United States, expected to reach $21.5 trillion this year.

Money only has value if there is a relationship with the value created in the real economy. So the value of money is not determined by the government, but by the private sector. The role of the financial sector is to allocate savings to those who can use them to achieve a higher return than the interest they have to pay.

The extremely low interest rates frustrate this system. Caveat emptor.

At more than USD 15 trillion, the Chinese bond market is the second largest in the world. China only has to surpass the United States. China is therefore the second-largest economy in the world and the Chinese economy is already almost 20% larger than the United States in purchasing power parity terms. Yet many investors outside China hardly have any positions in Chinese bonds. 

This while, at this time, there is a high added value, both in terms of return and diversification in a broadly diversified bond portfolio.

After almost half a century at the helm of KKR, co-CEOs Henry Kravis and George Roberts are handing over the baton to their successors. Kravis and Roberts are first cousins and, together with Jerome Kohlberg, they founded Kohlberg, Kravis, Roberts & Co (KKR for short) in 1975.

To a large extent, the current inflation level is a consequence of the coronavirus crisis. That is the main argument for labelling it temporary. However, the risk of this temporarily higher inflation is that it becomes lodged between the ears.

The Federal Reserve, the Bank of England and the ECB have all started to tighten. The Fed thinks that by the middle of next year it will have ended its 120 billion a month buying programme. At this rate, tapering will be faster than last time. To avoid discussions on tapering, Lagarde prefers to talk about recalibrating instead of tapering, but it is the same thing.

The energy transition is anything but smooth. This week, two energy suppliers went bankrupt in the United Kingdom and more are to follow. All this as a result of the record prices for natural gas. In continental Europe, too, the prices for natural gas are going up vertically.

Not all European regulations are good. Under the Sustainable Finance Disclosure Regulation (SFDR), part of the EU Green Deal, asset managers must disclose information on sustainability. The objective is thus more transparency and openness in this area. However, from the start the directive was used as a means to classify funds.

Index investing is a disruptive innovation from which private investors have fully benefited. They get more returns and at much lower costs. Moreover, academic studies and, of course, the annual surveys by Standard & Poors show time and again that simply trying to beat the market is doomed to failure.

Newton’s second law states that impact equals mass times speed. It is my conviction that sustainable investors have a greater impact than they often think. Not so much because of the speed, but because of the increasing mass. In the financial markets, it is the marginal buyer and the marginal seller who determine the new balance and it is here that sustainable investors give the right push.