– On the edge of the abyss, should we take a step forward?
With the return of inflation, the markets could fall much lower than the previous corrections that we have seen since governments tried to spray the Covid with billions.
In the world of finance, the new year is always a mystery, a blank slate starting over and a new eye on a market that hasn’t really changed since December 31st. Each 1East January, I wake up wondering what we will be able to offer in the next twelve months and if there will be anything new.
One thing is certain, at the dawn of 2022, we can already rule out a new subprime crisis. But it’s pretty much the same every year. For the rest, the bets are off: a new president in France, even if there is a good chance that it will be the same, a new president in IT’SUnited States, if one becomes aware of the decrepitude of the one who is in place. And then, above all, a rise in rates and galloping inflation. These last two points are probably the biggest anxieties of 2022 – at least in these first months of 2022.
The return of the injection
If there was still a doubt, the latter is now completely removed. Yes, the avalanches of economic support plans put in place since the advent of this famous Covid will cause inflation and, contrary to what the American Central Bank had predicted, it will be neither transitory nor under control.
From the first hours of the year, we were able to quickly become aware that Mr. Powell, head of the Fed, had completely failed in his forecasts. He had made that clear to us when we were decorating the tree – his positioning cheerfully shifting from dove to hawk. However, it should be noted that we started the year with a certain optimism. On this point very precisely, we therefore decided to believe it. To believe that we could possibly dodge too abrupt a rise in rates and massive intervention by the Fed.
Nay. We only had to wait for the publication of the first inflation figures to realize that we were not at the end of our troubles and that we would have to find the motivation to come to the office until the end of March. Indeed, as we were listing potential diets to eliminate our year-end excesses, the consumer price numbers hit us hard where it hurts the most: the pocketbook.
Never in forty years had inflation been so high. As soon as we became aware of this fact, things started to turn sour.
The end of technology
So the wonderful world of investing has gone back to the history books and remembered that when we get back into a cycle of rising rates, the first thing to clear out of portfolios is the technology. It is true that a rise in rates improves bond yields and that technology companies will find it more difficult to finance themselves at low prices and that their hyper-growth revenues will be impacted by a cycle of rising rates.
Once the user manual has been re-read, all that remains is to apply it. In two weeks, the Nasdaq was therefore literally massacred and is now in the “correction” zone – a zone defined by a drop of more than 10% from the all-time highs. As January winds down, we are clearly on the brink of an abyss that could take us much lower than any previous corrections we have experienced since governments replaced economic nature. by wanting to pulverize the Covid with billions. So here we are on the edge of the abyss, ready to take a big step forward. Would miss more than Biden to attack Putin in Ukraine.