Polis
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• Increased inflation rates in the industrialized countries and in Germany are to a certain extent transitory in nature due to the recovery in demand that began in spring. However, it is also partly due to longer-term effects such as the reorganization of supply chains and a shortage of labour. The latter will also drive inflation rates structurally via higher wage demands.

• Negative real interest rates encourage consumption. A situation that is comparable to the USA from the mid-1960s. Fixing interest rates with an expansive fiscal policy led to a flight into consumption. A reaction that may now also occur more frequently.

• Demographic problems are not only fueling structural inflation, but also (government) debt. In future, there will be fewer and fewer tax and contribution payers and more recipients of transfer payments who will be dependent on state support, especially in Germany.

• In addition, the intensifying bloc formation (USA, China, Russia, Europe) is leading to a decline in free trade and thus reducing the prosperity and wealth of national economies. This makes it even more difficult to grow out of and repay (national) debt.

• Demographics, decreasing globalization and declining free trade are the sustainable factors that are structurally driving up national debt and inflation.

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Development
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• Only (some) politicians benefit from irrationality in the form of populism. The population suffers from it. Be it in the UK, where the consequences of Brexit are now being felt, or among anti-vaccination campaigners. The non-vaccination of many affects the economy and the population through more restrictions and more cases of illness.

• A CO2 tax is the only efficient way to implement or achieve the climate targets through the inherent steering effect. The relatively higher burden on the poorer section of the population can be the gateway for new populists due to the necessary social cushioning of the tax effects.

• This could affect the efficiency of the CO2 tax. There is a risk of parallels with the German welfare state. Instead of introducing the concept of a negative income tax, all kinds of exceptions are created for political reasons in the form of transfer payments such as mothers' pensions, child benefit, skilled workers' pensions, etc., which bypass the actual target group and illustrate the inherent inefficiency of state redistribution.

• The political fixation on reducing CO2 emissions makes it difficult to see other solutions that would be possible through technical progress, such as CO2 storage.

• Nature conservation and climate protection are competing goals. Politicians must lead the discourse and decide in what proportion the goals should be achieved. It is not possible to achieve 100% of both at the same time.

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Investments
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• Bond investments have a negative expected return in real terms for the next 10 years. The creditworthiness of investments is dependent on the central banks and is only guaranteed by central bank purchases.

• Residential real estate is benefiting from the negative (real) interest rate. Despite the high valuations and past increases in value, prices will continue to rise.

The reasons for the further increase in Germany are:

• an unobservable increase in supply (rather the opposite is the case) due to a shortage of labor, resources and designated building land.

• The overall real estate development in Germany (rental income and value appreciation) can be explained by the level of the real interest rate. For example, at a real interest rate of 0% (+3% from the current level), the expected development would be 5% p.a.

• New residential construction of around EUR 90 billion per year is offset by fixed-interest investments of EUR 6,000 billion, from which capital would be diverted into real estate if inflation were to rise.

• Who is going to build the new houses and apartments in view of the shortage of workers?

• Gold will increase in value in an environment of rising inflation rates and declining confidence in issuers of fixed-interest securities.

• Equity markets do not react unambiguously negatively to inflation, as is often inferred on the basis of the 1970s. Back then, there were profitable fixed-interest investment opportunities. The fact that central banks and governments are not fighting inflation is positive for the equity markets. Price increases passed on to customers, the declining impact of personnel costs due to digitalization and low financing costs are also increasing the profitability of companies.

• Healthcare stocks in particular will continue to show relatively higher earnings growth and benefit from the ageing population and increasing prosperity in emerging markets. At the same time, the sector is less cyclical and has a normal historical valuation level.

• In addition to the above advantages for other forms of company investment such as shares, the "inertia" of the investment speaks in favor of private equity. Managers are not forced to sell the company in times of crisis and can continue to develop it. The same applies to investors who cannot make the typical "in-and-out" mistake of equity investors. An additional return of several percentage points p.a. compared to equities should be achievable with the private equity asset class.

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Platform
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• Inflation and (government) debt will rise and make low interest rates or negative real interest rates necessary. This speaks in favor of rising asset values.

• The risk of asset values in the form of higher short-term fluctuations must be accepted by investors in order to avoid a high and certain loss of purchasing power in the long term.

Exciting questions and outlook for 2022:

• Will inflation in 2022 perhaps not weaken as much as currently assumed? Will FINVIA's current inflation forecast - 3% p.a. for the next 10 years - become the consensus? If so, more portfolio shifts into real assets should take place in the coming year and an inflation mentality should take hold.

• The comeback of populism - especially in the person of Donald Trump - remains to be observed, as does the further development of the triangular relationship between China, Taiwan and the USA, which could gain momentum around the topic of chip manufacturing.

• The new federal government is irrelevant for the capital markets. On a positive note, however, the new government is a government of young voters and should therefore focus on the future.

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