Macroscope | Why we’ve not seen the end of stock market corrections or inflation
- While investors flock to the tech sector, the persistent underinvestment in the real economy, such as commodities-related infrastructure, is now pushing up prices
- At the same time, the factors driving the bull market – robust economic growth, rising corporate profits and buoyant financial liquidity – are no longer in play
Call it the “hope springs eternal” or the “bigger fool” syndrome; either way, the idea being put about now by some stock pushers that markets may have hit the bottom or that inflation has peaked serves only to indicate the depth of their ignorance about what’s really going on in the global economy.
It’s high time they shed their belief that financial markets are predictable, rational or efficient and that some mysterious “hidden hand” guides markets towards an optimum allocation of resources. This is a dangerous myth that flies in the face of reality.
Consider, for example, a primary and yet largely unappreciated factor behind the recent surge in global inflation. Covid-19 and the Ukraine war are the usual suspects but, in fact, a huge deficit of investment in commodity production over many years is pushing prices through the roof.
Kenneth Courtis, former vice-chairman of Goldman Sachs Asia and chairman of commodity traders Starfort Investment Holdings, is expected to address this phenomenon in a speech at the upcoming 2022 Qingdao Global Venture Capital Conference in China. It deserves attention from the “inflation has peaked” dreamers.
What has this to do with stock markets? It is precisely because markets do such a poor job in directing savings into long-term investment that the current commodity crisis has developed. The same can be said of the massive deficits in funding to address climate change, and infrastructure and healthcare needs.
The fact that the tech boom has now become a “tech wreck” is a serious indictment of the failure of stock markets to allocate capital in a socially responsible way, and of their preference to indulge in hysterical orgies of speculation on glamour stocks and high-rolling entrepreneurs.
Yet another example of this short-sightedness – and another boom threatening to go bust – is ESG (environment, social and governance) investment. ESG funds have attracted vast amounts of investment in recent times and are now attracting attention from crimebusters worried about “greenwashing”.
There is no room here to go into detail on any of these gigantic excesses and failures of judgment, beyond saying that they all illustrate the damage created when sober analysis of socioeconomic and financial factors is usurped by a misguided faith in the infallibility of the marketplace.