EMR Mai 2024

Dear Reader


Inflation is currently assumed to be the most deterministic factor?

Demand management is the most important determining factor?

Suppls management is the most deterministic factor?

We believe that productivity is currently the most underestimated factor. The following charts speak volumes about this, don‘t they? From the two graphs of short- and long-term interest rates and inflation, in the USA since 1831, the following can be inferred:

  • Short-term interest rates tend to be high (as expeccted) during periods of high inlflation (above 4%):
  • Short-term interest raees also ten d to ge hith during period of negative inflaion (under -3%):
  • A quite astonishing, similar pattern can also be seen in the yields of 10-year government gonds.

Specifically, the chart of 10Y Government Bond yields suggest that over the long-term, interest rates appear to b driven more by the up and downs of the busines cycle than by inflation resp. deflation. Summarising we infer the following.

  1. Short-term interests rates:
    • Tend to be high – as it ought to be expected – in strong inflationary periods (over 4%);
    • Short-term interest rates tend to ge high also in periods of negative inflation (under -3%), while short-term intrest rates tend to Be lower than the long-term averages.
  2. Long-term interest rates:
    • Tend to be high – as it ought to be expected – in strong inflationary periods (when inflation surpassees 4%);
    • The raes of increase are significantly lower in period of deflation than in periods of high inflation!


The widespread focus on inflation as a deterministic corrective force is indeed somewhat questionable. The fact is that there are many reasons why prices change. In the current economic phase, we argue in particular that inflation is, to a significant extent, due to supply constraints, not demand as portrayed in the media, by central bankers and many experts. If, as is currently the case, supply, e.g. of crude oil, is motivated by political behavior, it cannot be assumed that demand factors are decisive for inflation.

At present, it can be argued that the measures taken by central banks to lower interest rates have not been – and are not – as promising as is repeatedly claimed. We wonder how producers and suppliers of crude oil, for example, could be persuaded to lower their respective selling prices as a result of the respective selling prices as a result of the reduction in local interest rates. We do not see this policy as a promising way to solve the current supply bottlenecks.

Both Russia‘s war against Ukraine and the worrying situation in the Middle East continue to be alarming constraints on supply, suggesting that prices will remain high and will be very difficult to reduce significantly. This environment is expected to have a significant impact on currencies.

As Swiss investors we continue to be overexposed to our own Swiss market, due primarily to currency expectations.

Suggestions are welcome.



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