Polis
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• Compared to the last major crisis (World War II), the signs of important influencing factors have turned negative. Industrial production, productivity, demographic trends and the indebtedness of private households and companies are hampering economic development. In addition, government debt is also being strained by a sprawling welfare state.
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• Inflation will continue to rise in the long term without necessarily leading to higher interest rates. The interest rate level is more strongly influenced by the level of debt than by the inflation rate, whereby a high level of debt implies a lower interest rate level.
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• In contrast to the 1970s, interest rates cannot rise, as government debt has not yet been reduced. As a result, higher inflation has a positive effect on the economy (through rising sales, cheaper loans, etc.) and on the stock market (through more and more stock market investors).
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• Rising inflation rates with rising stock market prices are to be expected.
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Development
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• The biggest driver of inflation is demographics: baby boomers are retiring and in all major economies the proportion of working people is steadily declining. The ratio of producers to consumers is also falling. At the same time, the latter still receive state financing for consumption through pension payments. This has an overall inflationary effect.
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• The second driver of inflation is the decline in globalization since 2007. The value of globally traded goods is no longer rising faster than the value of globally produced goods and some countries such as China are increasingly isolating themselves from the global economy.
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• The third driver of inflation could be the way in which we combat global warming. Here, the investment and spending programs will also have an inflationary effect.
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• Even in the past, bond investments were only superior to equities over short investment periods. In the long term, however, equities were the less risky investments. In particular, state bankruptcies, wars and overall government spending behavior in many countries over the last 120 years have cost bond investors more money than equity investors, who have also had to accept interim losses. But in the end they were able to protect their investments.
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• The current negative correlation between share and bond prices will no longer apply in future capital market crises.
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• The consistently high tax burden in Germany, especially for low earners and singles, prevents wealth accumulation. This is not the case in Italy, where fewer taxes encourage wealth accumulation and more than 80% of the population owns real estate.
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• In Germany, the purchase of real estate should be encouraged through simpler building regulations, more designated building land and the waiving of real estate transfer tax for specific income levels.
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• In addition, a funded equity-based pension scheme should be introduced, as has already proved successful in other countries (USA, UK, Sweden, Denmark, etc.). Everyone benefits from the Riester pension, but not the Riester saver.

Investments
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• Residential real estate: Despite record prices, residential real estate is still cheap when wage and rental price increases and falling interest rates are taken into account. The price increase "fairly valued" should not have been 65% but 100%. As soon as more and more investors transfer their savings accounts into real estate, prices will continue to rise.
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• Government bonds: For US government bonds and German government bonds, future yields can be derived very reliably from current interest rates. Assuming an inflation rate of 3% p.a. over the next 10 years, government bond investors in the USA and Germany will lose 2.2% and 3.5% real value each year respectively, or 30% over 10 years in Germany. This is particularly unfortunate if such forms of investment - desired by the state - are the core of retirement provision.
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• Gold: The precious metal has always performed very positively when the real interest rate was negative. In other words, the interest rate level did not compensate for inflation. This is the case in Germany and the USA, among others (see above). The expected money printing by central banks to keep interest rates low will lead to more and more investors also investing in gold.
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• Equities: In general, there is a very high level of speculation, which has been widely spread among small investors through social media and networks. They invested in companies that do not actually have promising business models, such as Game Stop. The technology sector is also very highly valued, while the healthcare and consumer staples sectors are still valued normally and have relatively stable business models with earnings expectations of around 6-7% p.a. over the next 10 years. Especially as these sectors should benefit in times of higher inflation rates due to their pronounced pricing power.
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• On a cash flow valuation basis, the US equity market is currently more expensive than the Japanese equity market in 1989. A similar collapse is not expected as there are no alternative investment opportunities. Interim slumps on the global equity market will not last long, as investors will quickly return in view of the lack of alternatives.
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• In addition to high valuations, the IT sector is also being viewed increasingly critically by politicians. The latest developments in China cannot be transferred to the US IT sector. However, Republican politicians share the fear that companies such as Google or Amazon are making monopoly profits. This is certainly not helped by the low tax burden of many of these companies. If these developments materialize, shares in this sector will give up performance relative to the market as a whole. But the sector will not implode due to the high utility value of many companies and their high quality.
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• Industrial sector stocks could surge, driven by the planned spending and investment programs for climate protection and general pent-up demand after the coronavirus pandemic.
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• Fixed-interest bonds: Inflation-linked bonds are the only valid fixed-interest investment option. In addition to the basic yield of government bonds, they provide inflation compensation at higher inflation rates. This results in an attractive risk/return profile.
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• Private equity: as a "better equity investment" is always an option. The higher costs of fund managers are justified by the fact that they actually create added value in the companies (compared to previous times), which is reflected in an additional return compared to equities. The illiquidity of the asset class can also be seen as an advantage, as it prevents investors from bailing out in times of crisis, which can be detrimental to assets, as is widespread among equity investors.
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• Cryptocurrencies: This form of investment offers no protection against inflation. The inflation here takes place in the massive expansion of the number of cryptocurrencies. There are now over 6,000 cryptocurrencies. In addition, these currencies are not subject to any regulation, which means that fraudulent activities are frequent and hardly penalized. It is likely that cryptocurrencies will ultimately be introduced by central banks (EUR/ USD/ etc.). As a result, cash can be further restricted and government debt can be reduced even faster through even higher negative interest rates. The cryptocurrency asset class is therefore not relevant.

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Platform
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• Investors should look for assets such as shares, investment funds, real estate and gold. In contrast, you should avoid financial assets such as savings accounts, current accounts or government bonds.
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• Developments in the fight against global warming will need to be monitored more closely. It currently looks as if a lot of money is being spent on climate targets without achieving the desired success. The past suggests an outcome comparable to the energy transition.
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• Overall, investors with a balanced portfolio of asset classes should be able to achieve a mid-single-digit real return over the next 10 years.

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