interest rates

While browsing through all the predictions for next year, I noticed that hardly anyone dares to put China on the map. Until I recently saw JP Morgan’s outlook with the appealing headline  “Buy everything in China”. This was followed on Tuesday by Goldman’s statement that all the risks in China have now been factored in.

Since the 1980s, a balanced portfolio has been a great alternative to a full – highly offensive – equity portfolio. A balanced portfolio typically consists of 50 percent stocks and 50 percent bonds, although the children of the bull market have gradually stretched the stock weight to 60 or even 70 percent.

The current inflation surge is similar to the one after World War II. It then took two years for inflation to cool. Long-term interest rates should start to rise, according to the online Outlook 2022 conference organised by Candriam. Anton Brender and Florence Pisani, both economists, conducted the webinar.

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.

It is not a question of whether the tech bubble will burst, but when, Amundi CIO Pascal Blanqué warned again. According to him, the bubble will burst as soon as interest rates rise.

Blanqué spoke about this during the outlook for 2022 that he, deputy CIO Vincent Mortier and head of research Monica Defend presented to journalists on Wednesday.

“The world needs to be prepared for a debt crisis in emerging markets. Rising interest rates will draw capital away from vulnerable countries”, warned Kristalina Georgieva, director of the IMF. For the time being, not everyone feels moved by this warning, “emerging market debt is a paradise for active investors”, according to Wouter van Overfelt, senior portfolio manager EM debt at Vontobel, in an interview with Fondsnieuws, Investment Officer Luxembourg’s Dutch sister publication.

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.

While the price of gas shot through the roof last week, it seems that a real energy crisis can be avoided in the short term now that Vladimir Putin is going to supply extra gas. Nevertheless, the unexpected turbulence in the energy market is reason for ING to reassess its investment strategies. It is a perfect storm.

The 10-year and 30-year US yields are pushing towards the top of their trend channels. These interest rates are all-important for the further evolution of long-duration assets. 2 per cent on the 10-year segment seems to be a breaking point. A barbell strategy between value and growth may offer a solution.

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.