Longform’d. Il punto di non ritorno

Come sempre accade, quando si è in presenza di un punto di svolta, tutte le emozioni salgono a livelli di intensità molto elevati.

In altre parole, tutti si agitano. E tutti oggi sono agitati, emozionati e confusi.

In particolare gli investitori, cosa che si può capire,

Sono stati messi lì in un angolo, a giocare con le bambole di pezza, per un anno, mentre la Governante raccontava le favole zuccherose. Di particolare successo, la favola del lupo, ovviamente, ma pure la favoletta del “boom economico” ed anche la favola dell’inflazione transitoria.

Tutti felici, sorridenti, rilassati e … imbambolati.

Oggi, in giro non si trova più nessuno che non abbia una preoccupazione. Preoccupa l’inflazione, preoccupa la recessione, preoccupa il prezzo del petrolio, preoccupa l scarsità dei rifornimento, preoccupa ancora persino il COVID, e naturalmente preoccupa il finanziamento del debito pubblico (“tetto del debito”).

Tutto preoccupa, mentre solo due mesi fa, quando tutti erano in vacanza, sdraiati sulla sdraio, sotto il sole, il pensiero dominante era l’opposto: “questa volta, le abbiamo risolte proprio tutte”. Naturalmente, stampando soldi a manetta, la soluzione universale per ogni genere di problema.

Poi tra agosto e settembre tutto lo scenario è stato sovvertito, e a metà ottobre è arrivata la notizia da tuti temuta (ovviamente, non era temuta da noi di Recce’d e neppure dai nostri Clienti): nell’ultima settimana, quella di metà ottobre, chiunque è stato costretto a riconoscere che quella della “inflazione transitoria” era ed è sempre stata soltanto una patetica bugia, anche quella detta ai bambini “a fin di bene”.

Lo ha scritto anche Bloomberg, questa settimana, nel titolo che leggete qui sopra in apertura del Post: “I numeri, adesso, non possono essere smentiti”. E lo riferisce anche il titolo che segue, qui sotto.

Come sempre è successo, e come sempre sarà, è la realtà a prevalere sulla fantasia. I dati non possono essere smentiti.

Ma soprattutto, questo fatto recentissimo dovrebbe ricordarvi una cosa: è assolutamente sbagliato affermare che “un po’ tutti hanno ragione, a turno ora questo ora quello”.

No, è falso: uno solo ha ragione, e chi invece affermava l’opposto ha torto, e questo perché la realtà è una sola, non ce ne sono due.

E dunque: chi diceva a inizio anno che l’inflazione NON era transitoria ha ragione, gli altri hanno sbagliato. Molti non consapevolmente, altri scegliendo di … fare i fessi in commedia.

Sarà così anche per quello che riguarda i mercati finanziari, non c’è dubbio: solo uno, ha ragione, sui mercati finanziari.

Ed anche se i tempi sono sempre incerti (“quando arriverà la svolta sui mercati?”: risposta, quando vuole arrivare, ma questa volta più di altre volte in modo improvviso e rapissimo) non esiste modo per i mercati finanziari di aggirare la realtà, che prima o dopo passa e chiede il conto.

Per arricchire e completare questo nuovissimo Longform’d, vi proponiamo in lettura un altro articolo che è stato pubblicato in settimana dal New York Times. Un articolo che viene seguito più in basso da un nostro commento. E che si apre con un episodio che riguarda proprio uno dei nostri amici wealth managers, ovvero private bankers, ovvero promotori finanziari, ovvero consulenti addetti alla vendita (di Fondi Comuni).

Oct. 15, 2021

Terrell McCallum, a private wealth adviser in Dallas, spends a lot of time thinking about markets and interest rates. He knows that the Federal Reserve targets 2 percent annual price increases on average, so it was a shock when he learned that his rent would increase a whopping 10 percent this year.

“I can afford it, but it gets to the brink of financial burden,” said Mr. McCallum, 33. He and his wife have been saving up for their first home, but now that they are paying $1,830 for their apartment and fees, that will become more difficult. He tried to push back on the increase, but the company he rents from wouldn’t budge.

“They said: ‘This is what the market is doing.’”

Mr. McCallum’s experience is echoing across America, as rents shoot higher after a brief pandemic slump, burdening households and fueling overall inflation. That is bad news for the Federal Reserve, because it could make today’s uncomfortably rapid price gains last longer. It’s also problematic for the White House because it hits households right in their pocketbooks, diminishing well-being and fueling unhappiness among voters.

The jump in rents stemmed from a frenzy in the market for owned homes. People tried to buy as the pandemic took hold in the United States, often searching for extra space, but found that houses were in short supply after years of under-building following the housing crisis. That dearth of properties has been exacerbated by work stoppages, supply shortages and labor constraints during the coronavirus era, all of which have kept developers from ramping up production to meet demand.

As buyers bid up prices on single-family homes and condominiums, many people who would have otherwise moved toward homeownership found themselves unable to afford it, increasing demand for apartments and home leases. Rents have been further boosted by the large number of people searching for places with more space and home offices during the pandemic, and as millennials in their late 20s and early to mid-30s look for more autonomy.

“People might be looking to move out and on their own after being stuck with roommates during the pandemic,” said Adam Ozimek, the chief economist at Upwork, an online freelancing marketplace. “There’s also a possibility that remote work is playing a role here.”

Government stimulus checks and expanded unemployment benefits also helped people amass savings over the course of the pandemic, so they can afford to move. Personal savings as a share of disposable income popped during the crisis, and while the share has come down toward normal levels, it remains slightly elevated at 9.4 percent, compared with about 8 percent just before the pandemic.

The combination of factors seems to have created a perfect storm that pushed the Consumer Price Index measure of rent up 0.5 percent just between August and September, the fastest pace in about 20 years.

That’s a concern for the Fed, because housing prices tend to move slowly and once they go up, they tend to stay up for a while. Rent data also feed into what is called “owners’ equivalent rent” — which tries to put a price on how much owners would pay for housing if they hadn’t bought a home. Together, housing measures make up about a third of the overall Consumer Price Index.

Overall consumer prices have jumped sharply in 2021, climbing 5.4 percent in September from the prior year. Fed officials have been hoping and betting that the move is temporary, but they are watching housing measures carefully as a risk to that outlook.

“Many participants pointed out that the owners’ equivalent rent component of price indexes should be monitored carefully, as rising home prices could lead to upward pressure on rents,” minutes from the Fed’s September meeting, released Wednesday, said.

Rent is less critical to the Fed’s preferred inflation gauge, the one it officially targets when it shoots for 2 percent annual inflation on average, than it is to the C.P.I. But it is a big part of people’s experience with prices, so it could help shape their expectations about future cost increases.

Those expectations matter a lot to the Fed. If consumers come to anticipate faster inflation, they may begin to demand higher wages to cover their rising expenses. As businesses lift prices to cover rising costs, they could set off an upward spiral. Already, some key measures of inflation outlooks — notably the New York Fed’s Survey of Consumer Expectations — have jumped higher.

The Fed is already preparing to start slowing the large bond purchases it has been making during the pandemic to keep longer-term interest rates low and money flowing around the economy. If inflation stays high, the Fed may also come under pressure to raise its policy interest rate, its more traditional and more powerful tool. That might slow mortgage lending, cool the housing market and weigh down inflation.

But doing that would come at a big cost, slowing the labor market when there are 5 million fewer jobs than before the pandemic. So for now, Fed officials are getting themselves into a position where they can be nimble without signaling that they’re poised to raise rates.

White House officials are also wrestling with their options for easing housing price pressures. President Biden’s economic agenda includes measures that would build more houses and discourage zoning rules that keep new construction at bay.

Such an intervention would take time — homes are not built overnight. And in the meantime, rents will almost certainly continue moving in the inflation data, which reflect rising housing costs at a long delay. More up-to-date measures of rental pricing pressure produced by Apartment List and Zillow have shown costs climbing in recent months, though many measures of rent and new leases have calmed down somewhat after a red-hot summer.

The national median rent has increased 16.4 percent since January, Apartment List said in its September rental report, with monthly growth slowing slightly from its July peak.

U.S. Inflation & Supply Chain Problems

Covid’s impact on supply continues. Price increases that grew out of pandemic-related shutdowns and supply chain disruptions have continued. Here are some of its effects:

Prices jumped more than expected in September. The Consumer Price Index climbed 5.4 percent in September when compared with the prior year, raising the stakes for the Fed and the White House, which are now facing a much longer period of rapid inflation than they had anticipated.

Social Security benefits will rise 5.9 percent in 2022. The increase, which is tied to the Consumer Price Index and is known as a cost of living adjustment, is the largest in 40 years.

Rents have shot higher. The increase is burdening households and fueling overall inflation. That’s bad news for the Fed, because it could make uncomfortably rapid price gains last longer.

The Port of Los Angeles will operate 24/7. The expansion of the port’s hours comes as the Biden administration struggles to relieve backlogs in global supply chains, which are contributing to inflation. ​​Walmart, UPS and FedEx will also increase operations.

Wall Street is concerned about stagflation. The toxic mix of sluggish growth and high inflation is driving fears about the possible return of an economic specter from the 1970s: stagflation.

“This is still very strong by historical standards — we’re in off season,” said Igor Popov, chief economist at Apartment List. “It’s a racecar slowing down ahead of a turn, but it’s still going faster than we ever have in our lives.”

Whether rent growth speeds up or slows next year may hinge on whether the government support that has given households the financial ability to afford housing gives way to a strong job market.

“There’s room to run, for sure,” based on demographics alone, Mr. Ozimek said. “The question is whether the economy is going to go into full employment, or whether there’s a slowdown.”

Rents could heat up as big cities including New York and Los Angeles rebound from the pandemic, said Daryl Fairweather, chief economist of Redfin. While smaller cities’ rental markets have been hot for months, the median rent in Manhattan climbed for the first time since the start of the pandemic in September, data from Miller Samuel and Douglas Elliman showed.

The recovery in the New York area as a whole has been uneven as some families have moved to the city, bidding up prices, while others are struggling to pay, said Jay Martin, executive director of the Community Housing Improvement Program, which represents landlords of mostly rent-stabilized housing.

“You have bidding wars for one unit, and then a renter who can’t pay,” he said. “A tale of two cities is happening within the same building.”

Drew Hamrick, the senior vice president of the Colorado Apartment Association, a landlord group, said the rise in rents is not driven by landlords but by market factors.

“Landlords don’t really set the price, consumers set the price,” he said. “It’s musical chairs.”

Even if there is a pullback in rents next year, today’s suddenly higher housing costs could make for a painful adjustment period. Higher rent costs can reverberate through people’s lives and force tough decisions.

Luke Martinez, a 27-year-old in Greenville, a town in East Texas, is contemplating buying a trailer and setting his family up on an R.V. lot after learning that he is losing the three-bedroom house he has been renting for about $1,000 per month since 2016.

“It’s insane the amount of rent, even in this little podunk town,” Mr. Martinez said.

He’s looking at paying up to $1,500 per month for a new place, which will be tough. After getting laid off at the start of the pandemic, he had been living partly on savings — padded by an insurance payout after his car was stolen and totaled. He returned to working in automotive repair only this week. His wife had been working the front desk at a hotel until two months ago, but she is now home-schooling their 8-year-old.

If they end up renting at the higher price, they will most likely afford it by forgoing a new car.

“It’s pretty much just scraping by,” he said of his lifestyle.

Jeanna Smialek writes about the Federal Reserve and the economy for The New York Times. She previously covered economics at Bloomberg News.  @jeannasmialek

Questo articolo a noi serve nell’ambito del Longform’d come esempio. Esempio che serve a ricordare a voi, lettori del Blog, che se vi hanno detto che ‘inflazione non è un problema di cui tenere conto, perché non si vede nella vita quotidiana, vi hanno appena raccontato l’ennesima favoletta, come è facile dimostrare andando alla pompa per fare il pieno di carburante per l’auto, oppure quando si riempie il serbatoio per il riscaldamento della casa, anche qui in Italia.

Una seconda cosa che ci è molto utile, dell’articolo che avete letto sopra, è il richiamo agli Anni Settanta, richiamo che chi segue il Blog ricorderà, fin dall’agosto del 2020, ovvero 15 mesi addietro, come il nostro tema forte.

Il lavoro di ogni gestore di portafoglio sta prima di tutto in questo: nell’essere efficace nella costruzione di scenari credibili (e non ridicoli come quelli della “inflazione transitoria”).

Scenari che sono INDISPENSABILI per poi formulare in modo razionale fondato aspettative di rischio e rendimento per azioni, obbligazioni, valute, oro, petrolio e persino Bitcoin.

Non si riesce proprio a comprendere come in tanti abbiamo la pretesa di affermare che “le azioni faranno così” oppure le obbligazioni faranno cosà” oppure “il petrolio può solo salire” quando neppure capiscono (neppure alla lontana) che cosa sta accadendo nella realtà intorno a loro. Eppure, moltissimi insistono, a sparare bolle di sapone in aria, e c’è poi sempre qualcuno che le scambia per il sole.

Oggi, il tema di mercato, in tutto il Mondo, è per tutti la stagflazione, come dice anche l’immagine più sotto. Come già detto, vi sarà utile riflettere sul fatto che nell’agosto 2020 Recce’d vi scriveva e vi parlava di stagflazione, mentre tutti gli altri vi scrivevano e parlavano di “boom economico” e di “inflazione transitoria”.

Non lo abbiamo soltanto detto: abbiamo anche operato, a favore e nell’esclusivo interesse del Cliente, in questa direzione. per questo, mentre voi lettori oggi siete divorati da ansie assortite per il vostro portafoglio, i nostri Clienti guardano al loro futuro cone legittime aspettative di guadagno. Quelle che voi, oggi, non avete più.

Ovviamente, voi amici lettori del Blog siete liberi di stare a sentire chi vi pare, e di parlare di chicchessia: ma la competenza, nel mondo degli investimenti, conta, e conta moltissimo. La differenza tra un gestore competente e un chiacchierone impreparato la vedete nei risultati dei vostri investimenti, come sempre a fine corsa. E quindi, … occhio!

Come dice l’immagine sopra, e l’articolo che avete appena letto, voi lettori oggi siete in preda a dubbi ed ansie assortite. Se volete uscire da questa scomoda situazione, che deriva dal non sapere che cosa aspettarsi nell’immediato futuro ed anche nel futuro più distante, scriveteci e fissiamo un contatto via telefono al più presto. Noi siamo qui per ascoltarvi e proporre le nostre soluzioni ai vostri problemi. Nel frattempo, a proposito di problemi, potete leggere nell’articolo che segue di un’ondata di tensioni sui prezzi e sui tassi che ha colpito ogni angolo del Mondo.

Rising inflation is triggering anxiety around the world as a surge in demand following the easing of Covid-19 lockdowns has been confronted by supply bottlenecks and rising prices of energy and raw materials.

The sharpest consumer-price increases in years in many countries have evoked different responses from central banks. More than a dozen have raised interest rates but two that haven’t are those that loom largest over the global economy: the Federal Reserve and the European Central Bank.

Their differing responses reflect differences in views about whether the pickup in prices will feed further cycles of inflation or will instead peter out. Which view is right will do much to shape the trajectory of the global economy over the next few years.

The large central banks are relying on households showing faith in their track records of keeping inflation low, and the expectation that there are enough under-utilized workers available to keep wage rises in check.

Other monetary authorities aren’t sure that they have yet earned that kind of credibility as inflation fighters, and see a higher risk that wage rises will surge. In poorer countries, a larger share of spending usually also goes to essentials such as food and energy that have seen the largest price rises, so policy makers are quicker to tamp down on inflation.

Chile’s central bank on Wednesday increased its interest rate by one and a quarter percentage points to 2.75%, surprising economists with its biggest rate increase in 20 years.

“It’s affected us so much, everything has increased,” said Sandra Valenzuela, a 46-year-old in Santiago, who lost her sales job last year and is now grappling with putting enough food on the table at home. “We have to adapt to the economy.”

Her family has cut back on eating meat, saying it is now too expensive, and is buying cheaper brands of other goods.

Price rises began to accelerate world-wide in March, taking inflation rates higher than most central bankers had expected. By August, the annual rate of inflation in the Group of 20 largest economies—which account for about four-fifths of the world’s output—had risen to a decade high.

The inflation surge is being driven by a combination of economic forces that few central bankers have seen before.

The rebound in consumer demand has come much sooner and much more strongly than usual in the aftermath of an economic contraction. But supply has struggled to meet that demand. Expecting a more subdued and more drawn-out recovery, few manufacturers have added capacity during the Covid-19 pandemic, while factories and many parts of the global transport network have been hindered by government restrictions on work and movement.

Central bankers from the Group of 20 leading economies, meeting Wednesday in Washington, D.C., said that they expect that those forces of supply and demand will balance out over coming months, and that as they do inflation rates will ease.

Some of them have already raised key interest rates, most notably Brazil and Russia, which were among the first to move back in March. And as inflation has advanced, with no clear end in sight, other central banks have joined them.

Of the 38 central banks tracked by the Bank for International Settlements, 13 have raised their key rate at least once. In October, the central banks of New Zealand, Poland and Romania increased borrowing costs for the first time since the pandemic struck. Singapore, which tightens policy by nudging its exchange rate higher, joined that group Thursday.

For all central bankers, the big worry is that inflation becomes embedded as households start to factor expectations that faster inflation is here to stay into wage bargaining and businesses make the same assumption as they set prices. Where memories of high rates of inflation are fresher than they are in the U.S. and Western Europe, that is a greater risk.

“Emerging markets are turning hawkish because there is a risk of inflation expectations going much higher,” said Bhanu Baweja, chief strategist at UBS Research.

Almost every country in South America has been through a period of very high inflation in living memory, and prices are again surging there following a decline in new coronavirus infections. Without increases in wages to match, many households are in financial peril.

Like Chile, Colombia and Peru are also seeing rising prices after years of controlling inflation. That has prompted central banks in both countries to tighten their monetary policy as households struggle to make ends meet.

With food markets on a wild ride lately, cheese has seen more volatility than most. Yet in supermarkets, prices have remained relatively stable. Here’s why sharp changes in wholesale cheese prices are slow to make it to consumers. Illustration: Jacob Reynolds

Peru, which had one of Latin America’s biggest economic contractions in 2020, is grappling with its fastest increase in consumer prices in more than a decade. The central bank has been raising its reference interest rate since August, including a half-point increase in October to 1.5%. Peru’s inflation hit 5.2% in September.

Most current central bankers work off a game plan that owes much to the successful fight against very high inflation last seen in rich countries during the 1970s. A key lesson they take from that period is that when wages rise very quickly to match inflation, further sharp rises in prices are likely, and a vicious cycle ensues.

In some countries, the risk of a wage and price spiral is greater because there are few workers who can be recruited to help meet rising demand.

That is a particular problem in Central Europe, where a number of central banks have raised their key interest rates over recent months. Emigration to richer Western Europe and low birthrates have reduced the number of workers. According to projections from the European Union’s statistics agency, Poland’s population could fall by more than a fifth by 2100.

“Central and Eastern Europe is one of the regions of the world where we think that the risk of sustained higher inflation in the next few years is greatest,” said Liam Peach, an economist at Capital Economics.

For policy makers at the Fed and the ECB, the threat of a wage and price spiral seems lower, while they are also counting on memories of a long period of very low inflation to anchor household expectations of future price rises. That view has recently been questioned by economists, including Fed economist Jeremy Rudd, who argues the evidence simply doesn’t show expectations actually drive inflation.

Rising food and energy prices have also pushed up inflation across much of sub-Saharan Africa. Ethiopia’s central bank in August raised its rate for lending to commercial banks to 16% from 13% and doubled the cash-reserve ratio requirement for commercial banks to 10%.

Inflation in sub-Saharan Africa’s top wheat producer surged to 30% in September, from 26.4% the previous month, as a mix of conflict, blocked trade routes and locust infestations cut food production.

For most parts of Asia, central banks are still cautious about tightening monetary policy too early for fear of undermining weak economic recoveries which weren’t stoked by big official stimuli.

Chinese producers have so far absorbed rising commodity prices, hurting their profitability. China’s factory-gate inflation surged 10.7% in September, the most in nearly 25 years, in large part due to higher coal prices. The country’s consumer inflation rose 0.7%, far below the official target of around 3%.

Speaking at the G-20 forum on Wednesday, China’s central bank governor, Yi Gang, said the country’s inflation is generally “mild.”

In Turkey, President Recep Tayyip Erdogan this week fired three top central-bank officials. He has demanded lower interest rates to encourage economic growth, raising concerns among investors who say rate cuts will add to inflationary pressures. Turkey’s annual inflation rose to 19.58% in September, its highest level in 2½ years, according to the country’s official statistics agency.

Elsewhere, governments are resorting to measures that were common during the 1970s, but have since been set aside in most countries. On Wednesday, Argentina’s interior commerce secretary, Roberto Feletti, announced a 90-day price freeze on 1,247 goods in stores amid concerns about rising food prices.

“We need to stop food prices from eroding salaries,” he said.

Siamo sicuri che la lettura dell’articolo precedente ha competato le vostre informazioni con qualche elemento che fino ad oggi vi era sfuggito, dato che i media nazionali non attribuiscono alcuno spazio ed alcuna importanza a notizie di questo genere, mettendo invece sempre in prima pagina i “successi del Governo Draghi”. Eppure, fenomeni globali di questa portata vanno a toccare in modo diretto anche i vostri personali interessi, e soprattutto il vostro portafoglio di investimenti.

Noi questo tema lo abbiamo affrontato qui nel Blog in numerose occasioni, nel corso del 2021: oggi, ci ritorniamo nel Longform’d grazie all’articolo del Financial Times che leggete qui sotto.

Siamo arrivati al punto di non ritorno non soltanto per ‘inflazione, come detto in precedenza, ma pure per la compiacenza degli investitori e dei mercati finanziari, come dice benissimo l’articolo.

“Quando arriverà la svolta dei mercati?”, in molti si domandano. Leggete bene l’articolo, e capirete che è già qui. E’ già arrivata.

Come si dice, in modo particolare, alla chiusura dell’articolo in questione, i mercati ancora oggi sono sostanuti dalla convinzione del pubblico che “La Federal Reserve non lascerà scendere i mercati finanziari”, ma adesso la situazione è molto diversa anche dal recente passato.

“Something has to give”, qualcosa dovrà cedere. Un anello della catena dovrà spezzarsi.

Se voi amici lettori vi siete affidati ad un competente gestore di portafoglio, lui a quest’ora ha già capito, e provveduto. In caso contrario, avrete serie difficoltà

It felt too good to be true and maybe it was. The Panglossian optimism that prevailed in the markets over the summer has faded thanks to perceptions of weaker growth momentum in the global economy and, more especially, in those twin engines of global growth, the US and China.

Business and consumer confidence has waned, job growth has underwhelmed, energy prices have spiked and supply bottlenecks are everywhere. That, in turn, has given rise to growing concern about inflationary pressure. Central bankers who earlier insisted that surging inflation was purely transitory are now having second thoughts, raising the possibility that they will soon reduce the support they have been offering to a recovery that now appears to be flagging. In a delicately revisionist phrase, Andrew Bailey, governor of the Bank of England, has talked of possible circumstances in which “transience would be longer”.

Since September the result has been falling equity prices and rising bond yields. This has spelled trouble for conventional portfolios comprising 60 per cent equities and 40 per cent bonds. The change in correlation between the two asset classes means that there is no longer a rise in bond prices and fall in yields to offset the pain if equity prices fall.

That is what happened in the great stagflation of the 1970s which was also marked by spiking energy prices. It required dramatic rises in interest rates to curb soaring inflation expectations. Under Paul Volcker, the US Federal Reserve raised policy rates to close to 20 per cent in 1981. In an effort to re-anchor expectations, the Fed held rates above inflation into the new millennium. In the early 1980s, developed world economies were much better equipped to handle abrupt increases in interest rates than they are today. Debt levels were low whereas now, because of the pandemic, global debt in 2020 jumped by 14 per cent to a record high of $226tn, having seen a big earlier surge after the financial crisis of 2007-09. That reflected the central banks’ ultra-loose monetary policy which encouraged borrowing and a bond-market bubble.

Another consequence of the Fed suppressing Treasury yields through its asset purchasing programme, highlighted by Steven Blitz of TS Lombard, is that equities have become an outsized percentage of household net worth in the US and thus have an outsized impact on discretionary consumer spending. He believes the implication is that an overvalued equity market has become a vigilante governing Fed actions. This seems counter-intuitive. Bond market vigilantes in the 1970s imposed fiscal discipline by refusing to buy excessive issues of government debt in the primary market. An equity vigilante today would be selling shares in the secondary market to pressure central banks into monetary indiscipline. Yet Blitz is onto something.

There is no question that if the monetary authorities normalise policy, the resulting tightening of financial conditions could damage the recovery. In its latest Global Financial Stability Report, the IMF says that there is significant uncertainty about the effect of normalisation on asset prices given the larger role central banks play in sovereign bond markets, the anticipated increase in the supply of government IOUs and diverging monetary policy cycles across countries. If anything that understates things because of the extraordinary extent to which central banks have nationalised global securities markets. The IMF’s own figures show that monetary authorities have increased the assets held on their balance sheets to close to 60 per cent of gross domestic product, almost double the level prevailing before the pandemic. Any reduction or reversal of the support the central banks now offer to the global economy and to markets could thus have a devastating impact.

The central bankers know this and they also know that if their response to rising inflation precipitates collapsing markets and a recession it could cost them their independence. It follows that there could be a behavioural bias towards caution and delay in tightening. Yet the lessons of monetary policy in the 1970s and 1980s were that while rising unemployment resulting from early tightening could easily be addressed by a change in policy, delay would cause inflationary expectations to become unmoored. A much tougher policy and a more serious recession were required to bring inflation under control.

Delay was in fact the response of the Fed under Arthur Burns, who insisted that the rise in oil and food prices was not a monetary phenomenon and therefore should be ignored. That was how the US arrived at a benchmark policy interest rate around 20 per cent and a horrendous recession in the early 1980s. Few now doubt that the central banks will shortly cut back their asset purchasing programmes. Yet investors’ deep seated conviction that monetary authorities will always come to the rescue if markets tank suggests that weakness in bond and equity prices will not turn into a rout just yet. That said, we are in an unstable equilibrium. In due course something has to give. john.plender@ft.com