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Anatole Kaletsky - significant fall in equity prices ahead

Anatole Kaletsky’s key points: 14/5/20

  • 1-3 months. Markets highly likely “his view that a significant fall in equity prices is coming

  • 1-3 years. “Sometime in 2021, Kaletsky thinks it’s very likely another bull market will start after a moderate economic recovery, although he believes earnings will be a lot lower than in 2019.” But the markets have been behaving as if there's 100% probability,” he said, yet there’s no clear evidence that fiscal or monetary stimulus will avoid a depression.

  • “essentially guarantees zero or near-zero interest rates all over the world, at least for the next two years, and possibly for as long as the next three years.

  • 3+ years out. But there will be a price to pay for historic fiscal stimulus and “unimaginably” low interest rates, he said. “What this crisis represents is the final reversal of 40 years of monetary policy.

  • three structural factors — globalization, technology and politics — that have driven disinflation over the last 40 years are also reversing.

  • Globalization was already reversing because of the U.S.-China trade war

  • technology is shifting from a disruptive force into an inflationary one as the most successful technology companies in the world change their business models. “The business models of Google, of Apple, of Facebook, even of Amazon are shifting from disrupting established supply chains to monetizing monopolies.

  • then there is politics. For 40 years, the balance of power moved against organized labor in favor of corporations and profits, and against governments and government spending in favor of business and private spending. “That process was already reversing over the last 10 years …. coronavirus is going to give it a tremendous new boost. This is going to be turbocharged.

  • And therefore, Kaletsky said, by the middle of this decade, investors need to prepare for inflationary conditions. Crucially, however, higher inflation initially will not be accompanied by higher interest rates, because governments will want them low to keep funding unprecedent debts and deficits at zero or near-zero rates.

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