• Tech giants penalized in 2022
    • Inflation reaches record highs
    • Long-term bonds also under pressure

    Tech shares are in a difficult position this year. Not only have they been severely punished on the stock exchanges, but the latest annual reports from Amazon, Microsoft, Facebook parent company Meta Platforms & Co. have also shown how much the sizes are under the high inflation rates and rising interest rates. Things looked very different last year, as the tech giants ratcheted from one record to the next, leaving investors feeling there was only one way to go: up.

    Even the hype about tech stocks had to end at some point

    Taunus Trust investment manager Peter E. Huber saw things differently back then, as he wrote in his most recent monthly comment, which is available to Börse Online: “In every decade there has been hype in some stock market segment. Since 2010 it has been the rise of technology stocks. We were told with sparkling eyes about the incredible growth opportunities of stocks like Facebook, Nvidia, Microsoft, Google, Netflix, Amazon, Alibaba or Tencent, which are said to be the future.We kept drawing the parallel to the Nifty-Fifty very early on bull market 50 years ago that ended in fiasco during the 1973 oil crisis.”

    Observe the U criteria when buying shares

    Now it’s time for the hype surrounding tech stocks to burst, just like the tulip bulb bubble did in the 16th century. Certainly, numerous investors would have “got a bloody nose” from this trend as well, according to Huber, anyone who wants to do things better in the future should instead of buying “supposedly good stocks” follow the approach “stocks are good [zu] Buy”. For the investment professional, this clearly means taking countercyclical action if the three “U criteria” are met. Shares should be “unpopular, undervalued and underweighted in investor portfolios” before they are considered.

    Inflation driven by central bank excesses

    The current surge in inflation came as little surprise to market experts. Institutional Money quotes from the monthly comment: “Years ago we pointed out the dangers of excessive money creation by the central banks. You may remember our comparison with a ketchup bottle: You shake and shake and nothing comes out, until suddenly a whole torrent poured out. It was a similar experience for the central banks, which printed more and more money without inflation spiking. Modern monetary theory was considered the new savior. The states are becoming increasingly indebted, mainly to finance bloated social programs. The central banks buy up the government bonds and pay back the interest earned to the countries. An almost perfect perpetual motion machine, which in reality hasn’t been invented yet.”

    The consequence of central bank excesses? In order to get the escalating inflation under control again, the increase in key interest rates now coincides with a phase of economic downturn. A deep recession could result.

    turmoil in bond markets

    A final sell-off has already taken place on the bond markets, as can already be seen from volatility indicators such as the MOVE index. According to Huber, even longer-term bonds with good credit ratings have now fallen by double digits, which would have been hard to imagine last year. However, this development did not come as a surprise to the head of investment at Taunus Trust, since the bond markets move in 30-year cycles. The monthly commentary says: “Together with Robert Rethfeld from “Wellenreiter-Invest”, we were pretty much the only ones who repeatedly pointed out the existence of the 30-year interest rate cycle. Even when the central banks, after the provisional interest rate low in 2011, In the years that followed, interest rates were manipulated further downwards and in some cases even into negative territory, and we repeatedly warned against investing in the bond markets.” According to Huber, given his cycle analysis, the next high in interest rates “will not be reached until 2040”.

    Editorial office finanzen.net

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