In the past year or so, the epidemic of the century hit the world, and major central banks released water to save the market, all because they thought the epidemic was short-lived and could set things right as soon as possible, but now even the founder of BioNTech, a vaccine manufacturer, predicts that the epidemic will continue to spread in the world until the middle of next year, unlike his earlier belief that normal life will return this summer. This year, the prices of raw materials and food, etc. have risen, but the United States and China has become a definite fight for hegemony, anti-globalization has become the wind, the cost can not be suppressed, only to fear that inflation is out of control, people’s livelihood more difficult.
Recently, the U.S. Treasury Secretary Yellen took the initiative to test the market’s response to interest rate hikes. Although she then made a clarification, seemingly out of line, but must know that she is the former chairman of the Federal Reserve Board, has long understood the way of caution. As such, this rather makes people feel that the next inflation is not idle, smart money also acted immediately, from the technology stocks to speculate on the resource sector, it seems that the day of the financial market reversal is getting closer and closer, the pace of global economic recovery will face a severe test!
During the outbreak of the epidemic, the global economy was once a collective standstill, raw materials and product suppliers due to bearish prospects and cut capacity. However, with the central banks around the water hose, developed countries have started vaccination, consumer demand gradually rebounded, supply and demand mismatch so that many product prices rose. To the recent attack of the variant of the virus, epidemic prevention measures are not yet fully retired, coupled with the lack of supply of semiconductors and containers, so that the supply is constrained to promote commodity prices increased, and began to transfer to downstream consumers. Major multinational companies have announced price increases in an attempt to pass on the costs to consumers. Even if consumers how reluctant, but also can not stop the trend of rising prices, the year will be more and more intense feeling of rising prices, the perfect storm suddenly arrived.
Looking at the substantive data, mainland inflation has turned from negative to positive in March and is expected to pick up in April to further confirm the trend. Hong Kong’s latest purchasing managers’ index also shows that purchasing costs rose sharply, the largest increase in 34 months. The United States next week will disclose the April inflation figures, expected to rise 2.6%, meaning that it will be higher than the Federal Reserve’s 2% target, Yellen at this moment to test the water temperature is not without reason, especially the immediate global traditional monetary policy has not much room for maneuvering, interest rates and then reduce is “negative”! Have a part in causing today’s predicament a few years ago Yellen, how could not know that the crisis began to cover up.
After all, the epidemic global central banks to release water, the demand generated by the debt is in the overdraft future. This year, reflecting the overall cost of financing the U.S. 10-year Treasury yield tends to rise is the warning sign, if the fight after the trend back up more than expected, the U.S. monetary policy will shift from “stimulating employment” to “prevent economic overheating”, as long as interest rates rise, the debt interest burden will increase. Will further compress demand, combined with the lingering epidemic, the aging population and the wealth gap and other serious problems, the threat of inflation will be more complex and difficult to solve. Such as this, Yellen also had to ensure that only the rich tax increases, but a drop in the bucket, the effect is bound to be small.
More importantly, the past globalization around the complementary mutual benefit, effective control of inflation, but also since the 2008 financial tsunami, inflation has been the main cause of non-existent. But nowadays, China and the U.S. are fighting for supremacy, the Biden administration has united with its allies to control China, and recently the EU has even suspended the approval of the China-EU Comprehensive Investment Agreement, showing that Europe and the U.S. may be on the front line. Under the anti-globalization, the consequences of runaway inflation are unimaginable!
As investors, we must pay attention to 3 major risks. One is the cost of debt and other leverage risks under the bottoming out of interest rates; the second is the liquidity risks of the banking system from loose to tight; the third is the pattern of economic recession has not changed, asset bubbles can no longer support the lack of safe assets, we must moderately adjust return expectations, and review the traditional investment concept, towards diversification, and actively looking for a way out for funds.
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