April was a poor month for equities. Global Market capitalisation based benchmarks declined 8%+ in US$ terms and approximately 3% in A$ terms as the A$ declined in a “risk-off” environment, as it usually does. Most countries and sectors declined.

Everyone now knows that inflation is not transitory. Defence food and energy security are probably important. Rolling back years of poor monetary policy and years of neglect of the capital stock of a nation is not going to be an overnight event; but that is what makes it an investable proposition. That realisation will come slowly to many investors, slightly less quickly to central bankers (encumbered by academic arrogance) and probably very slowly to all politicians.

It seems pointless to give much space here to statistics which illustrate the rampant price inflation that was incubated by poor monetary policy and artificially suppressed by manipulating the calculation of the inflation basket. If it hadn’t been the Russian invasion of The Ukraine, it would have been catalysed by something else.

Evidence of rampant price inflation, suffered as usual by those least able to deal with it, are in almost every financial media article. We are surprised that they’re surprised. It was all so obvious. Our frustration is we didn’t perform even better having turned down the chance to drink the ‘transitory’ Kool Aid.

What happens now? So where should we invest?

In the long run nominal bond yields tend to equate to nominal GDP. Thus we are still some way off equilibrium with global government bond yields at 2-3% and nominal GDP much higher, thanks to inflation. At some point we’ll get a tipping point with either more interest rate increases at the long (and short?) end, and/or a decline in nominal GDP.

Bonds in the last couple of years haven’t been safe and have declined (US10 year note) in the order of about a 20% loss of capital since the bottom of the yield in mid-2020 of about 0.6%. Modified duration x yield change = approximate capital price change, ignoring convexity. At a yield of 0.6% these were highly explosive toxic instruments, as we suggested.

Almost as bad as stocks like LYFT, NFLX and all those SPACs that were so heavily promoted by Wall St?

Thus for equities: bias to Value, favour dividends as part of the 8% target, favour beneficiaries of capital investment, look at balance sheets because refinancing of debt at ludicrously low levels is yesterday’s story and will not now be possible, and ditch the idea of FANG and remember to QUAKE.


Union Pacific




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