Polis

• Inflation will not fall below 2% in the long term. However, the capital market's inflation expectations are not reliable indicators that investors should look at, as they show no correlation with actual inflation
• Rather, the relevant factors are structural changes such as globalization (accelerated by the pandemic and the war in Ukraine) and demographic trends, which increase inflation rates
• Strongly rising wages are also contributing to inflation rates remaining higher than in the past
• The energy transition is another structural factor influencing inflation
• The ECB is discussing the fact that 2% can no longer be maintained as a long-term target for the inflation rate. Measures have already been taken to support certain eurozone countries in the event of rising interest rates
• In the long term, over the next ten years, an inflation rate of 4% could be realistic
• Inflation is expected to fall further in the short term, partly because energy prices are not only no longer rising, but are falling sharply

Development

The USA is facing particular problems that are leading to a high risk of recession:

• One is the large amount of money that has been printed and distributed to the population, which has temporarily boosted consumption. This effect is expected to diminish soon
• Another point is the relaxation of the rules for banks introduced after 2008 and the lower capital ratios in the USA compared to the eurozone, which recently contributed to a banking crisis
• The interest rate structure indicates a risk of recession (short-term interest rates are higher than long-term interest rates, which is an indicator of a recession and has been since July last year)
• Banks have already started to restrict lending, as rising short-term interest rates are affecting the profitability of long-term loans

Europe has some problem areas (e.g. France with its high overall debt), but the risk of recession is lower than in the USA.

Investments

• German government bonds do not offer sufficient returns to preserve assets in the long term; inflation-linked government bonds are somewhat better, but you should not expect high returns here
• Gold will benefit from rising inflation in the long term and could profit from the uncertainty surrounding the US debt ceiling. It can be assumed that the trend growth of the last 55 years of around 7% p.a. will be maintained
• Residential real estate in Germany is showing signs of ending its decline in value: rising wages will increase demand and rental affordability. The forecast expectation is 6% or more annually over the next ten years for German (energy-efficiently renovated) residential real estate
• The US equity market is expected to perform weaker than other equity markets: our models currently predict less than 3% p.a. While in Germany and Europe the expectation is close to 8 %, 9 % and in some cases over 10 %.
• In times of recession risk, healthcare stocks and consumer staples stocks are less vulnerable (the risk of a slump in earnings is extremely low here)
• Private equity has performed strongly in times of crisis, with returns of around 10% during the financial crisis and even higher returns during the coronavirus crisis and the Russia-Ukraine conflict. PE therefore remains an attractive investment for the next ten years. A decisive advantage: investors cannot sell, even if they want to in times of crisis. This means they have no choice but to wait for the funds to recover. In contrast, equity investors tend to sell in times of crisis and only get back in when the situation has already improved, which can lead to losses

Plateau:

What could a weighting in the portfolio look like?

• More than half of wealth should be invested in entrepreneurial investments, such as private equity and shares
• 20 % residential real estate with a focus on commercial real estate in Germany
• A 10% allocation to gold remains attractive
• 10% can be held in cash, government bonds or normal bonds
• The US share should be below 50%, more likely around 30%, instead a good share in Europe and emerging markets can make sense as the exchange rates, recession risks and valuations are more attractive
• Another third should be held in consumer goods and healthcare stocks, as these can be stable even in recessions

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