Mordy added that since bonds weren’t the safe haven they usually were in 2020, investors are now seeing the end of the disinflationary era. This is a tricky business for portfolio construction as real interest rates are much higher and bonds generate low yields for several decades.
“There is no easy answer here,” he said. “And there comes a time when our customers – many of them retirees – need a decent income. However, building an income portfolio is more difficult than ever with traditional approaches. “
However, this new era of inflation will not appear in a big curtain on the horizon. Instead, it appears quietly. The current conversation is all about worldly stagnation, new normals and other dire perspectives, pointing to the effects of demographics, automation, digitization and other disruptive forces on prices.
But classic mistakes are often made in analysis, Mordy WP said. For example, automation leads to faster productivity growth and falling prices in several industries, but it also increases real incomes and leads to more consumption elsewhere. Rising spending is raising prices in other sectors of the economy.
And what about the deflationists’ favorite domain: demographics? This is actually mainly true for the industrialized countries. Most emerging economies have much younger demographic profiles, and the global millennial generation is the largest in the world today – around 1.8 billion people and nearly a quarter of the world’s population.