Ramin Nakisa

There are certain things which are toxic for bonds and equity.

So inflation is one of them because inflation is like the mortal enemy of bonds because you've got a fixed income and inflation gobbles away a little bit of it every year.

Equity, inflation above 5% usually means that equity de-risks.

So the price to earnings multiples fall.

So both fall together if you get inflation spikes.

So high inflation regimes, the hedge breaks.

Bonds don't hedge equity.

Whereas normal conditions, when inflation is reasonable, 2%, 3%, that's the sweet spot, the correlation breaks down.

It's negative or zero, and they hedge each other.

So what worries me

is that these kind of situations where we get inflation spikes seem to be becoming more frequent.

So we got the huge one after COVID when we switched the global economy off and on again.

And that was a hugely inflationary period because governments were printing money.

We had supply chain issues which pushed up prices.

So it was a perfect storm for inflation.

And we had double-digit inflation.

But then we've had this situation where we've got tariffs from the US.

Also, we've got the Strait of Hormuz being shut.

And again, we've got an inflationary shock.

So it seems as if the world is moving towards one in which these supply shocks are more frequent.