Polis
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• Putin may win the Ukraine war militarily - albeit with far more casualties and later than he had anticipated. It is possible that Putin's strategic mistakes will jeopardize his position in the medium term.
• By invading Ukraine, Putin has set events in motion that have led to NATO now standing side by side more united and determined than before. And countries such as Finland and Sweden, which were not previously members of NATO, are now thinking aloud about joining.
• The impact of the sanctions against Russia was also dramatically underestimated: Russian shares have lost over 80 percent of their value in the past eight days.
• In addition, Putin's aggression has made it clear to many countries that are dependent on him or his oil and gas that they must become independent as quickly as possible. This rejection will very probably even spread to China, as the Chinese certainly do not want to become dependent on Putin.
• So it all boils down to a Pyrrhic victory: Russia is establishing itself as a pariah, decoupling itself from the entire global economy.
• This accelerates the energy transition, as countries want to overcome their dependence on oil and gas even faster.
• By arming the German army and other western armies, the national debt will continue to rise. At the same time, the economy will be stimulated.
• Inflation rates will therefore remain high for longer than expected. However, interest rates can hardly be lowered due to the already high level of government debt, which will continue to rise as a result of additional spending. In the last few days, interest rates have already fallen by 0.3 percentage points in the USA, 0.4 percentage points in Germany and 0.6 percentage points in Italy.
• This further exacerbates the problem of negative real interest rates, which means that real assets of all kinds remain attractive - especially gold.

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Development
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• The labor shortage continues to worsen - skilled workers are in short supply, especially in the USA and Germany. The "war for talent" is not expected to ease until 2031.
• Demographically speaking, the population in 22 industrialized countries will shrink due to a declining birth rate, which will exacerbate the shortage of skilled workers.
• In addition, the proportion of the population aged over 80 will continue to rise. The state will have to step in to support medical costs and healthcare expenditure, which will place an additional burden on public finances.
• Rising government debt in turn means that interest rates must be kept low by the central banks. This means that inflation cannot be adequately combated. Accordingly, we will face higher inflation levels in the longer term.
• The rearmament that is now starting and the accelerated energy transition are exacerbating the current situation of a lack of skilled workers to build tanks or wind turbines. The wage-price spiral will continue to increase - especially in Germany with its low unemployment rate and correspondingly low reserve of potential workers.
• Artificial intelligence or automation by robots will not solve this problem, at least not in Germany. We are lagging far behind Asian countries in terms of digitalization and science education for pupils.
• Another driver of inflation is the stagnating globalization resulting from the new geopolitical situation:
• The war in Ukraine has effectively eliminated Russia from the global economy.
• China is also increasingly tending to seal itself off in order to further consolidate its independence.
• Trade blocs are thus emerging that not only restrict globalization, but actually cause it to shrink.
• As a result, these developments will have an inflationary effect.
• Rising inflationary pressure is not just a result of foreign policy and demographics. In Germany, home-made problems such as populist measures in climate protection and the welfare state are exacerbating the situation.
• Due to micromanagement and a sprawling catalog of requirements, sensible, climate-conscious modernization of German properties is hardly economically possible.
• The German state spends almost 30% of national income on social purposes. However, the wealth situation of the poorer half of Germany is far worse than that of its European neighbors. The very high marginal taxation of the population makes it unnecessarily difficult for low and middle earners to build up wealth . This in turn has a negative impact on motivation to work and makes the shortage of skilled workers even more difficult.

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Investments
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• The stock market remains an important component of wealth, but very few Germans approach it professionally - just like investments and pensions. This is also confirmed by a study conducted by our Family Office and the Handelsblatt Research Institute, which can be found HERE can be downloaded HERE.
• German government bonds and US bonds:
• German government bonds (10-year term) are yielding less than 0% p.a. again. The real interest rate will amount to -3% p.a. or less.
• At 1.7% p.a., US bonds with the same maturity do not yield significantly better (real interest rate of -2% p.a.).
• Neither investment serves to preserve or increase assets.

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Real estate:

• Real estate is still a relatively inexpensive form of investment. This is precisely because incomes in Germany, Italy and Japan have risen faster than real estate prices.
• With rising inflation and higher wages, rents will also increase and real estate will remain an attractive form of investment - provided it is not expensive luxury real estate or inner-city properties.
• However, construction costs will rise significantly in the future due to a lack of tradesmen, necessary renovations and climate-friendly upgrades.
• Gold is still an attractive form of investment.
• Historically, this form of investment has reacted positively to the average inflation of the last seven years. Gold is therefore attractive ahead of the expected level of inflation.
• Historically comparable situations have led to a doubling of the gold price in subsequent years.
• We are forecasting an increase in the price of gold that will exceed the rate of inflation.

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Outlook:

• In general, the stock market is reacting negatively to the Ukraine crisis, with a few exceptions
• Interest rates will continue to fall or remain low.
• Our return expectation for equities from most emerging markets, Europe and the healthcare sector in particular is 5 to 7% p.a. over the next 10 years.
• This means that the healthcare sector is developing just as positively as the IT sector, but with less fluctuation. The reason for this is demographic change and an ageing population that is dependent on good medical care. The healthcare sector is attractively valued in relative terms - without being sensitive to the economy (the same applies to the consumer staples sector).
• In the case of investment funds, the assessment remains that they perform more stably than equities, particularly in times of crisis, and will therefore be more profitable in the coming years.
• Overall, it can be said that the stock market generally only reacts to warlike situations in the short term, so we should see the end of the current trend soon - assuming that the Ukraine crisis does not escalate any further.

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To summarize:

• The global equity market has a 10-year expected return of 3.9% p.a. The expected annual return is depressed primarily by the high weighting of US technology and communications companies (e.g. Alphabet, Meta, Disney and Netflix), whose earnings potential is limited in our view.
• For European equities, we expect an annual return of 6% p.a. over the next ten years - assuming inflation rates of 3% p.a.
• For German residential real estate, the expected return over the same period is 6% annually and for gold we expect annual growth rates of 3.5%.

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Platform
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Forecast for inflation and interest rates:

• Inflationary pressure will rise, as will government debt. This will keep interest rates low over the next decade.
• This base scenario has a positive impact on residential real estate, gold and equities.
• One thing to bear in mind is that although the outlook for German and European equities is good, international diversification should be taken into account - broad diversification leads to more robust portfolios, especially in times of regional risks (such as those now being triggered by the Ukraine conflict).

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Geopolitical situation:

• The reconstruction of Ukraine will fall to Europe if either Putin withdraws from Ukraine or stays in Ukraine but still asks for help.
• The leading role of the USA and NATO remains undisputed, which means that a more stable world order is emerging away from the current war.
• Looking further east: China will face considerable problems due to its completely oversized real estate market. In the last 10 years, around 15% p.a. (i.e. a total of two and a half times national income) has been invested in real estate. This has led to very high vacancy rates and prices.
• For Xi Jinping, gaining and retaining power has become more important than the prosperity of his people.
• This could result in dangers, as China is now not only economically but also militarily very powerful. Chinese military spending is more than three times as high as that of the Russians.