Market Insights
June 2022

Stoicism in 2022

In his thirteenth letter, titled On groundless fears Seneca tries to teach Lucilius a few things about courage, resilience and fears The Stoic philosopher  offers a critical assessment of worries and claims that “we suffer more often in imagination than in reality The reality is, Seneca didn’t witness Covid 19 nor the Russian NATO war nor did he see the beginning of a new era for monetary policy Otherwise, he would be more than worried. The first half of the year comes to a close, and it feels like we have lost a few naïve optimists along the way indeed Both global stocks and bonds have declined (e g MSCI World and Bloomberg Global Agg 21 2 13 9 resp thereby challenging theories around portfolio diversification The long lasting impact of the pandemic on global supply chains, new lockdowns in China, the Russian invasion of Ukraine, financial vulnerabilities (private sector debt to GDP near historical highs in most countries or extreme valuations for risk assets), a Fed behind the curve, a Fed now slamming the brakes a bit too hard, fragmentation risks in the Eurozone The list of risks facing the financial system in 2022 seems quite long and the biggest concern so far is to see the global economy flirt with stagflation voire recession in region as Europe What Seneca would have dismissed as unreasonable fears, are sadly becoming painful facts (and real numbers). The latest CPI numbers showed that U S inflation is surely more entrenched in the economy than what was previously thought Headline/core CPI increased 8 6 6 0 in May year over year, a 40 year high, versus consensus estimates of 8 3 5 9 Euro area annual inflation also rose to a new record high at 8 1 above the previous record of 7 4 and consensus expectations of 7 8 We even saw worrying signs of second rounds effects in Europe lately (ECB’s indicator of negotiated wages advanced from a subdued 1 6 in 4 Q 21 to 2 8 in 1 Q 22 Pent up demand is fading, while fiscal and monetary policy accommodation is gradually withdrawn on both sides of the Atlantic, and elevated energy materials prices keep on eroding business and consumer confidence.
Hans Itburrun
Chief Investment Officer, Head of EAM & Head of Asset Management
Hans Itburrun

Hans Itburrun

Chief Investment Officer,

Head of EAM & Head of Asset Management