The economy may damage your portfolio

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I’m not, as a rule, a big fan of articles on macroeconomics. But there are historical turning points when I’m fascinated by them. We are at an historical turning point as inflation tops 7% in many western countries. As night follows day central banks will respond to reduce demand in those economies. They are likely to leave it too late (initially inducing more inflation) and then, just as likely, to over react, resulting in a high probability of recession.
Stop me if I’m boring you with this subject, but you might find excepts from a Martin Wolf article published in the FT on Wednesday of interest. I think Martin Wolf has a great record of understanding “over-the-horizon” economic events.
Economic sorrows come in battalions, By Martin Wolf
Subtitle: High inflation, rising energy cost and a weakening economy are now with us, and the impending tax rise will make it worse
He starts the article by saying the BoE is now expecting the UK to show the “weakest growth of real post-tax labour incomes in more than 70 years”. The average person can look forward to a fall of 2 per cent this year, followed by 0.5% fall in 2023.
The UK is particularly hard hit by rising inflation. So is America.  As a result “the economy, the people and the government face hard times”.
The BoE’s Monetary Policy Report, out last week, noted: “Global inflationary pressures have continued to build significantly, largely driven by the sharp increases in energy prices and upward impact of the imbalance between supply of and demand for tradeable goods on their prices. On a UK-weighted basis, four-quarter world export price inflation, including energy, is expected to have risen to around 11 per cent in 2021 Q4.”
I think the first chart Martin uses shows how historic the 2022 position is. Real incomes are going to fall as badly as they did in the notable years of the mid 1970s and 2010-11. They were painful...To read more subscribe to my premium newsletter Deep Value Shares – click here

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