Polis

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• Inflation was already high before the Putin war, but investors ignored this for a long time. Only after the war did they realize that inflation was high and would continue to rise. Added to this were the rising natural gas prices.
• This led to a sudden fear of an energy shortage, which triggered fears of recession in Germany and many other countries, as interest rates across the eurozone rose by around 200 basis points.
• We are currently experiencing a relatively normal development, especially in comparison to crises such as the oil crises in the 1970s - where, just like today, an energy price shock was met with high inflation.
• The difference between then and now is that share prices fell sharply in the 1970s because governments were able to raise interest rates above the rate of inflation due to the low level of national debt (then around 30% of national income, now well over 100%). As a result, bonds became so attractive that many investors sold shares.
• Although equities were also sold off heavily this time, interest rates have been falling since mid-June - long before inflation was reached. Bonds therefore remain unattractive and equities will probably stabilize soon or have already stabilized.
• Wherever it was expensive and there is high debt, values are currently falling sharply (e.g. the real estate markets in China, New Zealand or Canada). This is triggering a recession in parts of the world, which in turn is causing inflation rates to fall.
• Since interest rates have fallen, investors are no longer selling shares in large numbers and the stock markets are beginning to stabilize
• When professional fund managers act pessimistically (recognizable by high cash ratios), this can be a buy signal for shares. As an investor, you then have the opportunity to achieve significantly higher returns than on the stock market (historical analysis of the last 22 years).

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Development

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• Structurally, inflation rates over the next 10 years will be higher than in the past (in America and the eurozone). Instead of 8% or 9% as in other countries, we will be at 3.5% or 4% (probably not 2% as the ECB is aiming for).
• Even slightly rising interest rates mean that central banks will soon have to intervene to lower interest rates again, meaning that inflation will remain sluggish.
• The probability of a recession in parts of the world is relatively high. However, the recession itself will also cause inflation rates to fall.
• In a recession, people generally consume less as they are more cautious and postpone purchases. In the medium term, inflation will therefore be lower in the next 1 to 2 years than it is today, but will no longer fall to 2% on a sustained basis.
• The indebted world will hardly be able to cope with further sharp increases in interest rates, which is why interest rates are likely to fluctuate over the next few years. However, it will not exceed the inflation rate.
• The dollar has now become very expensive and should depreciate significantly in the long term. Especially with the hopefully imminent end of the Putin war and the supply problems, a medium-term fall of 1 dollar is a likely scenario.

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Investments

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• Government bonds remain unattractive in Germany. With 0.7% on 10-year government bonds and inflation of 4% per year, we will experience a real loss of purchasing power of around 3%.
• The best time for shares is not at the low point of the economy, but several months before. The probability that the stock market will lose more than 30% over the next ten years is also extremely low. Equities therefore have less forward risk than savings, bank accounts, credit balances or government bonds.
• Real estate shares have fallen sharply without the real estate prices of the apartments behind them falling, which makes no sense in the long term.
• The shortage of simple apartments (EUR 6 to 8 basic rent) will increase significantly over the next 10 to 20 years. It is therefore quite unlikely that Vonovia shares or other companies will lose value.
• From an analytical point of view, the gold price is strongly linked to inflation. But: it is not linked to current inflation. In Germany, the price of gold has remained stable and has risen slightly due to the rise in the dollar. If the inflation rate in America rises for several years, the price of gold will also rise sharply. Even at 3.5% inflation, this is positive for high single-digit increases in value over the next ten years.
• Company profits have developed quite positively so far. Sales and profits will rise relatively sharply over the next ten years due to higher inflation rates than interest rates or, for example, increasing digitalization. This means that there is still potential for a mid to upper single-digit performance on the equity markets.
• We continue to see very good potential for private equity. Thanks to the experience of private equity managers (optimizing companies and avoiding management mistakes), companies in private equity funds perform better in the long term than companies on the capital market.
• In addition, private equity funds make fewer losses in times of crisis, as can be seen from their historical performance compared to equities.
• In addition, PE funds launched during or shortly after a recession generate particularly high returns.

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Plateau

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• Putin's war and the rearmament of NATO countries will keep inflationary pressure in place for the time being.
• Inflation remains relatively high. The reasons for this are globalization, demographic trends, the expensive energy transition and the fact that debt levels are extremely high worldwide.
• For these reasons, a significant rise in interest rates above the current level is not possible.
• Recession or not, now is a good time to buy shares.
• One reason is the general pessimism, which is reflected in companies' cash ratios, for example. The second reason is the currently very low valuation in some cases (in Europe, share valuations are average, in Germany even extremely low). A third reason is the course of a recession, as share prices bottom out a few months before the low point of the recession. Over the course of the recession, however, they rise by around 45% within a very short period of time.