History may not repeat but it can rhyme

By Anthony Halls

In our view, either inflation will dissipate of its own accord (the global economy adjusting to equilibrium), or the world’s central bankers will raise interest rates until inflation falls. We prefer the former scenario because the latter likely comes with an economic recession - which is unappealing.

2022 has been the worst year for financial markets for decades. According to some records, the sell-off in global bonds (the rise in global interest rates) is the worst since 1788 - the year after the US Constitution was created, and the year before the French revolution. Data is, of course, somewhat iffy from back then so one wonders about its precision; however, it is certainly the worst year for fixed interest so far in the modern era.

Equities too have had a very poor half year (as has nearly every asset class). Even cash is down in real terms because deposit rates are so far below inflation. Usually, bonds are a diversifier from equities (i.e. one works when the other doesn’t), but not this year. 2022 has seen the biggest simultaneous drop in both major asset classes since 1976 – another attention-grabbing sound-bite from a long time ago.