Summary

Talk of an “everything bubble” in financial media is not conducive to an understanding of the macro forces at play. Structurally low interest rates will naturally produce optically high asset valuations. And despite an eye-watering burst of inflation, we remain in a low interest rate regime globally. Unlike the 1970s (which is a poor analogue), today’s inflation stems not from persistent institutional failure and policy error, but a one-off blunder in the face of immense uncertainty. While deglobalisaiton and decarbonization present risks of on-going supply-side weakness, they are impediments to profitable investment which lower the neutral interest rate, other things equal. The low-rate thesis is further reinforced by events in China, which is entering an economic ice-age to rival that experienced in post-bubble Japan.

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