Han Dieperink

More economic growth means more population growth, according to Thomas Malthus. The demographer and preacher believed that food production is linear and population growth exponential, and as such are the limits to growth. An overpopulated society leads to famines. Epidemics and wars were insufficient to control the growing population, according to Malthus.

The Federal Reserve is doing something else than what it says it is doing. At last week’s FOMC meeting, Fed chief Jerome Powell said that “the committee is not trying to cause a recession”. Yet it is clear that the Fed is directly linking a recession to lower inflation risks and that the Fed does want to fight inflation.

In the autumn of 1997, both in Europe and the United States, the ten-year interest rate fell towards 5 per cent. This was caused by the Asia crisis, which caused prices to fall worldwide. Falling interest rates and falling share prices were an unusual combination at the time.

Since 1926, the S&P 500 index has fallen by more than 20 percent fifteen times. On average, the index fell 34 percent in seventeen months during such a period. As many as eleven of the fifteen times the market paused somewhere between 15 and 20 percent price decline, just as it is doing now.

Then some of the earlier losses were made up for. On that basis alone, there is a good chance that the fall will continue.  

Nowadays, when the term stagflation is mentioned, everyone thinks back to the 1970s. Anyone who suggests a stagflation scenario as a real scenario for the future is immediately reminded of the many differences between then and now. The vast majority of people in the financial world started working after the 1970s. If they were born then, it is not a period they actively remember.

The US national debt recently passed the 30,000 billion dollar mark. Since March 2020, the US national debt has increased by 7,000 billion dollars. All those “Treasuries” are ultimately part of one’s portfolio. Certainly now that some major buyers have dropped out this year, it remains to be seen whether enough buyers will remain.

Financial markets do relatively well when it comes to predicting the future. Collective wisdom is ultimately translated into share prices. Index investors benefit from this collective wisdom and are effectively free riders to the hard work of many. Yet in the stock market, it is not easy to distinguish between what is possible and what is real.

After Russia, the eurozone is probably the big loser in the Ukrainian war. Not so much politically or strategically, but economically. The eurozone economy was already ailing before the Russian invasion. That is why the buffers are not big.

Major investors like Warren Buffett and Goldman Sachs are increasing their positions in oil stocks. Buffett recently bought large positions in Chevron and Occidental Petroleum. For Goldman, Exxon is the favourite. The price of oil this year peaked at $123.70 a barrel on 8 March and has since fallen to around $100 a barrel. Historically, these are not low prices, but apparently there is more in the barrel.

The Nasdaq now trades more than 20 percent below last November’s high. With Big Tech remaining under downward pressure, other parts of the Nasdaq look promising. 

There has actually been a correction phase since February last year. First in the more speculative parts of the market, such as technology companies that are not making profits, SPACs or software companies with extremely high valuations.