The Two Things Investors Should Keep an Eye On

These are certainly special times we are experiencing at the moment, from the virus pandemic, new all-time highs in the stock markets, commodity boom to the war in Ukraine. Investors are certainly thinking about how best to position themselves in such times, but one should by no means lose sight of the current circumstances when making positioning decisions. Vladimir Lenin once said,

“There are decades where nothing happens; and there are weeks where decades happen”

The things that are happening today can be compared to the time of 1970 when inflation was rising rapidly and the world was once again overshadowed by war. Two key factors that kept investors busy back then were inflation and unrest.

Inflation

Inflation is certainly one of the hottest topics at the moment and has been rising rapidly since the outbreak of the pandemic. The price increases were initially driven by cut-off supply chains and massive currency expansion and are now exacerbated by political decisions.

Consumer price indices (CPI) recorded new highs in almost all countries worldwide. In the US, the CPI rose by 8.5% year-on-year in March. The producer price index (PPI) rose by 11.2%. In the EU, the consumer price index rose 7.4% in March and the producer price index rose 31.4%. These are official figures that should be taken with a grain of salt, as inflation affects everyone differently depending on where and how you live.

Initially, supply chains were disrupted as the world went into lockdown due to the pandemic. As countries gradually reopened, supply could not meet demand. In addition, central banks launched a special pandemic program to rebuild economies. The economies recovered quickly, but prices for many goods rose rapidly. Now, with the war in Ukraine, global supply chains were again strained, this time politically motivated. The embargo imposed on Russian products and banks is weakening Russia, but the rest of the world is struggling with rising prices as a result. In the EU, for example, cheap energy products from Russia have to be replaced by more expensive alternatives from other parts of the world.

In order to stabilize consumer prices again, central banks now want to raise interest rates. Now it will be crucial to see whether the interest rate hikes can really bring inflation back, as supply chains and political decisions are probably the main price drivers of consumer price increases at the moment. This definitely holds the potential for a massive recession in the global economy that would wipe out much of the wealth of ordinary people. The right allocation in uncertain times is certainly a key factor at the moment.

Unrest

Global unrest drives safe-haven investments, and not without reason. Conflicts between individual countries can quickly escalate to a global level. The war between Ukraine and Russia has become a global chess game now dominated by misinformation and sanctions. In addition, there are various domestic unrests such as the trucker protest in Canada or protests due to pandemic measures.

Investors who have been in business for a long time know that any spark can become a fire. Local unrest can quickly become a major problem for the local economy and other countries. Unrest is therefore certainly an important factor to keep an eye on.

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