Opinion

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.

The Nasdaq is in a clear downtrend. It is still being held up by the ‘generals’, the big tech heavyweights such as Alphabet, Microsoft and the like, but it is important to watch out.

Mortgage rates and home prices are skyrocketing worldwide. That is not good news for housing affordability.

The graph below shows the relationship between the one-year change in US 30-year mortgage rates and the one-year change in the ‘Housing Affordability Index’. Roughly speaking, the change in mortgage rates explains about 40 percent of the change in the affordability of a home for sale in the United States. 

Luxembourg loves the new new thing, especially when it comes to financial legislation. The big question is: what should be next? The Grand Duchy may have found the answer already.

In the late 1980s, the Grand Duchy successfully tapped into global investment fund markets by becoming the first EU member state to offer Ucits-passports to international investment funds. Today, three decades later, more than a quarter of Europe’s fund assets has its home here. The country has even become a leading global funds hub.

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 latest edition of the Bank of America Global Fund Manager Survey shows that fund managers are still overweight equities while their expectations of future economic growth have fallen sharply.

In fact, the chart below shows that fund managers have never been so pessimistic about growth. Not during Covid and not during the Financial Crisis. The mismatch between expectations and positioning is extreme.

Bond yields have shot up worldwide. The US 10-year yield stands at 2.90 percent compared to 1.50 percent at the beginning of the year. This has led not only to one of the biggest falls in bond prices ever, but also to a less attractive valuation of equities.

For the moment, inflation is largely caused by a sharp increase in energy prices. Two years ago, the oil price was negative for a while, but since then it has been rising rapidly. Sustainability policy measures have contributed to this, because investment in new oil extraction has been under pressure in recent years not only because of the low oil price.

If there is one economic lesson my father, a construction engineer, taught me, it’s that mortgage rates in Europe always follow what’s happening in the United States. When rates go up across the Atlantic, they’re bound to do the same in our part of the world. So when it comes to locking in a good mortgage rate, look west.

Not surprisingly, Berkshire Hathaway has risen 16 percent this year and has outperformed the S&P 500 by 23 percent over the past 12 months. Pricing power is an important criteria for Mr Buffett and Mr Munger in their selection process. Their company in essence is one large investment portfolio, and one that is resilient to increasing inflation.