Watch the intervention of Davide Serra (Founder and CEO, Algebris Investments) debating Policy-Making for an Inflationary Era with Gita Gopinath (First Deputy Managing Director, IMF) and Axel A. Weber (Chairman, IIF) at the 2022 Bloomberg New Economy Forum in Singapore.
History teaches us that when inflation stays above 5% for more than 12 months it takes years to be reversed back to central banks’ 2% target. We are well past 5% across global economies, and whilst we are at an inflection point in inflation we should really prepare for a period of structurally higher inflation as green transition, geopolitics and the decoupling of supply chains globally are intrinsically inflationary.
The world is designed to have inflation around 2-3%. We had zero for 10 years, now we’re going to have 3-4% for the next 10. This is positive as it’s the only way to de-leverage after years of cheap debt and easy money. The change of paradigm however will be an awakening for some. We’ve seen how the LDI issue caught regulators by surprise. We now talk about stocks and bonds, which are just 1x Global GDP against 4-5x Global GDP represented by real estate. So as soon as house prices start coming down, peoples balance sheets are becoming weaker.
Policymakers’ job has suddenly become more difficult.
This document is issued by Algebris (UK) Limited. The information contained herein may not be reproduced, distributed or published by any recipient for any purpose without the prior written consent of Algebris (UK) Limited.
Algebris (UK) Limited is authorised and Regulated in the UK by the Financial Conduct Authority. The information and opinions contained in this document are for background purposes only, do not purport to be full or complete and do not constitute investment advice. Under no circumstances should any part of this document be construed as an offering or solicitation of any offer of any fund managed by Algebris (UK) Limited. Any investment in the products referred to in this document should only be made on the basis of the relevant prospectus. This information does not constitute Investment Research, nor a Research Recommendation. Algebris (UK) Limited is not hereby arranging or agreeing to arrange any transaction in any investment whatsoever or otherwise undertaking any activity requiring authorisation under the Financial Services and Markets Act 2000.
No reliance may be placed for any purpose on the information and opinions contained in this document or their accuracy or completeness. No representation, warranty or undertaking, express or implied, is given as to the accuracy or completeness of the information or opinions contained in this document by any of Algebris (UK) Limited , its members, employees or affiliates and no liability is accepted by such persons for the accuracy or completeness of any such information or opinions.
The distribution of this document may be restricted in certain jurisdictions. The above information is for general guidance only, and it is the responsibility of any person or persons in possession of this document to inform themselves of, and to observe, all applicable laws and regulations of any relevant jurisdiction. This document is for private circulation to professional investors only.
© 2022 Algebris (UK) Limited. All Rights Reserved. 4th Floor, 1 St James’s Market, SW1Y 4AH.
