THE increase in headline inflation is a genuine concern especially for the struggling families as well as the central bankers in their ivory towers who are staring at a monster they have created.
Imagine that if the rich are feeling the pinch, think of the lower-and middle-income households.
At the same time, some politicians living on another planet who know almost nothing about economics or monetary policy will blame the rising inflation or the cost of living on a scapegoat. They must get elected or re-elected at any cost or price in the next election.
Bad politicians will always appeal to some unintelligent voters who will spend far more time and effort focussing on something trivial like race and religion that they do understand than something that is more intellectual and complicated like monetary policy that they do not.
This explains why such electorate still lend their support to politicians with poor reputations.
Run for your life!
Some people hate the prospect of immigrating. However, they know better than sticking around while the house burns. Forget about the developing and poor countries like Malaysia, Venezuela and Zimbabwe where the poor are growing food to survive because it is harder to make ends meet.
Let me turn to the developed world. 25% of the UK’s inflation basket is experiencing double-digit increases. Rishi Sunak (UK’s Chancellor of the Exchequer) delivered the usual boilerplate attempt at empathy. “I know this is a worrying time for many families which is why we are taking action to ease the burdens,” he said.
Make a trip to any large cities and you will notice homeless people sleeping on the sidewalk every few steps. Whoa, I am referring to America and not China.
This may be hard for some of us outside of the US to chew given the “richest nation on the planet” narrative but hey, this is the truth, Homer.
How much is the combined wealth of Jeff Bezos and Elon Musk again?
Moving on, Russia’s invasion of Ukraine added pressure not only on oil and gas (O&G) prices but also a whole bunch of commodities ranging from wheat, barley, sunflower seed to fertilisers.
Renewed lockdowns in several cities in China are now further complicating the inflation outlook.
The impact will be felt in the coming months. One has to wonder if the bear has won the day. Are wages keeping up with inflation? Sorry for this stupid question. Consumers will begin to buy less unless they take on more debt to sustain their lifestyles.
Escalating inflation
Without wages climbing faster in real terms, what is going to happen to the high prices? Please connect this to how the yield curve has inverted and the US economy is heading to a recession, according to the financial media.
What should we do when faced with higher inflation that is fast eroding the purchasing power of our savings? We can either allow our wealth to be “destroyed” at the bank or invest in more “volatile” assets for higher returns in the long term.
If we know what we are doing, any short-term volatility will turn out to be a blip on the long-term chart.
We are all going to die. Any last wish please? The bullish sentiment is at 30 years lows and we did not even get this during the dotcom crash, Great Financial Crisis or the pandemic.
Nassim Taleb (Lebanese-American essayist, mathematical statistician, former option trader, risk analyst and aphorist) says if you are going to panic in investing, panic early. The markets have already priced in a lot of bad news.
The risk is the bull market resumes and catches everyone off guard.
While Bridgewater Associates (an American investment management firm) is figuring out whether bonds are “dead or in a coma,” investors should continue to remain diversified or properly hedged and be patient knowing that the markets are tired, angry and confused just like their spouses after a tough day.
Elsewhere, I am bearish on the emerging market currencies. I am bullish on the US dollar. Euro is going nowhere but is still better than the yen. – April 19, 2022
YH Wong is Senior Partner (Asia) at Satori Consultancy (MUR) Ltd and has over two decades of experience in the financial services industry.
The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.
