Economists at Natixis believe that investors can build their portfolios based on three simple ideas. Inflation is going to return , real long-term asset prices are going to rise sharply on the back of negative real longterm interest rates and the abundance of liquidity and the US dollar is going to depreciate.
Key quotes
“Inflation is currently very low in OECD countries but a number of mechanisms are likely to lead to an upturn in inflation. Deglobalisation, with the slowdown in imports from low-labour-cost emerging countries as production costs rise in these countries. The energy transition, which requires significant additional investment. The arrival to power of political parties that favour a more favourable income distribution for wage earners. Population ageing, which is inflationary, because pensioners are non-producing consumers. The upturn in inflation will lead to a rise in expected inflation and to the search for inflation-hedging investments.”
“Central banks will have to keep monetary policies expansionary due to the very high level of debt. So liquidity will remain highly abundant and long-term interest rates will remain very low. If long-term interest rates are low and inflation returns, real long-term interest rates will remain highly negative. With negative real long-term interest rates and abundant liquidity, long-term asset prices can be expected to rise sharply.”
“The US dollar is likely to depreciate significantly under the effect of the continuous rise in the US external debt, the creation of European federal bonds (issued by the EU) that will absorb a large share of the euro zone’s excess savings, which, as a result, will no longer be available to finance the United States’ external and fiscal deficits. Furthermore, the possible election of Joe Biden, whose policy platform (higher wages at the bottom, higher taxes on income, earnings, capital gains and wealth) is unlikely to attract investors to the US and the return of capital flows to emerging countries in search of yield, which always takes place at the expense of the dollar.”
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