{"id":30583,"date":"2024-05-06T14:29:53","date_gmt":"2024-05-06T12:29:53","guid":{"rendered":"https:\/\/www.fiala.de\/?p=30583"},"modified":"2026-06-22T21:44:04","modified_gmt":"2026-06-22T19:44:04","slug":"martins-capital-market-observations-mid-april-2022","status":"publish","type":"post","link":"https:\/\/www.fiala.de\/en\/martins-capital-market-observations-mid-april-2022\/","title":{"rendered":"Martin\u2019s Capital Market Observations \u2013 Mid-April 2022"},"content":{"rendered":"

Martin\u00b4s Capital Market Observations<\/u><\/strong><\/h2>\n

The developments of the past two to three years have prompted me to put my thoughts on paper and make them available to you. This \u201cbrainstorming\u201d is, of course, in no way a recommendation for action; rather, from my <\/em>perspective it is intended to shed light on a few aspects that generally (and across Europe) receive little attention.<\/p>\n

At the start of 2020, when we were all confronted with a new personal and economic reality, many people\u2019s worldview changed drastically. At this point I deliberately refrain from inserting my individual opinion, and instead focus on the actual economic conditions and the conclusions to be drawn from my <\/em>personal point of view.<\/p>\n

I was demonstrably one of the first economists\/market observers who, as early as mid-2020, pointed out with data and facts the highly likely economic scenario of stagflation. Unfortunately, this found a hearing neither among the political elite nor among professional asset managers. Back then, owing to the supply-chain problems that were clearly emerging (not just toilet paper, but specifically computer chips, raw materials, etc.), I expected a stagnation in the economy. Quite simply because products cannot be manufactured or completed if even a single small component is sitting on a ship at berth 100+ in one of the world\u2019s ports, waiting weeks to be unloaded.<\/p>\n

Yes, economic theory can be that simple!<\/p>\n

This situation has not improved since then; on the contrary, it has been considerably aggravated by the Covid issue and a zero-Covid policy in China, by now the most important economic region.<\/p>\n

This means that, on the one hand, goods and services are in demand, while on the other hand, owing to bottlenecks (personnel, goods stuck on ships, etc.), that demand cannot be met even remotely. According to the old and well-known model of supply and demand<\/strong>, this alone drives up the price of basic essential goods.<\/p>\n

This even culminated in the rumour<\/strong> that the tractor manufacturer Fendt had bought up refrigerators in order to obtain the chips installed in them, which were more urgently needed in agricultural machinery. I was unable to verify this, but it shows me the strange forms the economy is currently taking.<\/p>\n

To provide a factual assessment of the overall situation, I have compiled a number of charts below.<\/p>\n

The stock market has been moving almost exclusively upwards since 2009 at the latest (among other things, following the collapse of Lehman Brothers):<\/p>\n

Despite significant new economic events arising from crises such as Covid and the Russia\/Ukraine war, the DAX (and other major indices as well) is up by roughly 200%. Is that normal, and why, of all moments, should a stagflation scenario set in right now?<\/p>\n

At the same time<\/strong>, interest rates for financing the economy (companies, but also residential property) have become ever cheaper. This is very pleasant when you need a loan, but it also leads to (mal-)investments by firms or private households that, under normal (far more expensive) conditions, would not or could not undertake such financing.<\/p>\n

As you can see very clearly in the following chart, interest rates have fallen steadily since the mid-1990s.<\/p>\n

In the chart above you can see that, in the years 2019 to 2021, yields were even negative.<\/p>\n

Now you will say that this is bad for your savings deposits (overnight money, fixed-term deposits, etc.) at banks and insurance investments, and you are absolutely right. But if, at that time, you had already invested your assets in (international) bonds, you would have profited from enormous price gains, since when interest rates fall, the prices of bonds already issued rise continuously.<\/p>\n

However, these long-dated bonds (usually at least 10 years) also have an \u201cexpiry date\u201d and are repaid to investors at the agreed point in time. But since, in the meantime, reinvestment is no longer possible at, say, 6 to 8%, but only at around 2%, you as an investor have a problem with the (now almost non-existent) compound interest effect.<\/p>\n

What does this mean for your wealth?<\/strong><\/h3>\n

If you invest \u20ac10,000 (you are welcome to add a few more zeros) at an interest rate of around 7.2% and reinvest those interest payments year after year over 10 years, then on paper you will have doubled your invested capital. Why on paper? Well, because in the meantime there is usually also inflation<\/strong> (that is, rising prices). So if inflation were simultaneously running at around 4%, your \u20ac10,000 would have grown to only around \u20ac13,700 in real purchasing power, which would still be quite good.<\/p>\n

But<\/strong> for many years now we have been in a new (financial) world, because the central banks have actively pushed interest rates down globally in order to supply investors and market participants with ever cheaper money. Yet since there are no free gifts on the capital markets, you can perhaps imagine that the real problem<\/strong> is about to be revealed.<\/p>\n

With an official<\/u> inflation rate in Germany of 7.3% in mid-April 2022 and a negative interest rate of usually 0.5%, the so-called real interest rate<\/strong> is not, as above, plus 3.2% (7.2% \u2212 4%), but minus 7.8%<\/strong>. This means that in 2022 alone your monetary assets lose almost 8% of their purchasing power. The longer this situation persists, the more your monetary assets lose in purchasing power. If this were to continue for 10 years, as above (which I do not believe it will), only around \u20ac4,700 would remain of your invested \u20ac10,000.<\/p>\n

I deliberately illustrate this so clearly because it is not addressed at all by official quarters \u2013 and if so, only in passing \u2013 because otherwise the population would not be happy about it\u2026<\/p>\n

This example, however, applies not only to your savings deposits, but also to the money you have paid in over many years into insurance policies, pension funds and pension entitlements.<\/p>\n

All the more important, then, are professional and realistic life-stage analyses and calculations.<\/strong><\/h3>\n

To mitigate these effects (you cannot avoid them, even if advisers try to tell you otherwise with \u201cwonderful \u2013 possibly even tax-optimised \u2013 structures\u201d), tangible-asset investments<\/strong> are recommended. Their performance is usually tied to the development of the real yield<\/strong> and is thus intended to ensure capital preservation.<\/p>\n

The classic tangible-asset investments are considered to be:<\/p>\n