Sep 2021 – Inflation looms

All it needs is one idiot government minister to say ‘there won’t be any need for panic buying’ and, well, everybody’s panic buying.

The month started out with empty supermarket shelves and finished with North London petrol stations that still had petrol in them being a rarity, with queues that I assume will soon be rivalled by queues at car dealers for electric cars.

https://www.thesun.co.uk/news/16228841/petrol-stations-blocked-fuel-shortage-panic-buying/

In related news, there is a definite buzz returning to London. Clear differences with pre-pandemic life remain – widespread (tho mostly voluntary) masks, much more outdoor eating/drinking, testing regimes at offices and even before private social events. Thankfully, the trendy Dishoom restaurant chain is continuing to take bookings and hasn’t reverted yet to ‘queues only’. Oh, and the tube’s Northern Line has a new extension – the first tube addition for about thirty years.

The talk in the financial pages has been of inflation. Apparently the statutory living wage could be increased by 4% next year. The UK’s CPI is running at 3% in the year to August.

Supply chain issues and inflation are by no means a UK-only phenomenon – heck, inflation is running at over 4% in Germany of all places, and is around 5% in the USA. But here in the UK we have the added dynamics of Brexit and Boris to blame too.

Policymakers started to talk about lifting interest rates, which they managed to do without causing any tantrums. And whether policymakers talk or walk, the market assumes higher inflation will result in higher interest rates regardless.

Somehow, these dynamics have resulted in a stronger dollar – usually a sign of ‘risk off’ behaviour. Bonds are down, but equities have taken a proper tumble – down around 4% across the world. The notable exception is the UK, where FTSE-100 dipped only a little, but government bonds dropped about 4%.

Market movements in Sep, constant currency

So far as I can see, the equity falls included tech (big tech stocks like AMZN, GOOG and AAPL all fell ~5%, smaller tech fell even more) but also other sectors (conglomerate Berkshire Hathaway lost 3%, US retailer TGT down 7%) – but there were conspicuous exceptions such as energy firms (RDSB up 15%), JPM (up 3%) and more. I haven’t analysed this at all but my hunch is that the big losers here are the ‘long term growth players’ whose valuations have been underpinned by very low interest rates (i.e. a very low cost of waiting for the future); as interest rates start to increase (discounting future gains by more) these valuations are adjusting downwards.

My portfolio’s returns are as usual shown here. My drop of almost 4% was the biggest fall since the covid shock in early 2020, and if you ignore global pandemics, the biggest monthly fall for almost three years. It’s just rewound the clock to June or thereabouts, so it’s not yet registering as any sort of proper correction, but it’s ‘cost’ me a chunky six figure blow to my net worth. If the year ended today, it would be up almost 11%, so you aren’t reading any grumbles in this blog post.

I’ve been quiet on the trading front, though I had a couple of months old limit orders trigger – buying more of some longstanding positions on the dip. There will be more buying opportunities out there – though I’m more passive than active at the moment so I will let the rebalancing against index trackers approach do the heavy lifting for me, as usual. Onwards, for another month.

1 thought on “Sep 2021 – Inflation looms”

  1. For info:
    UK CPIH is 3.0% (for Aug 2021- the latest available) and the UK CPI is 3.2%;
    the German inflation rate for Aug 2020 is 3.9% and it is forecast to be 4.1% for September – some UK
    commentators have ventured that the UK CPI will, in due course, reach that level too
    US CPI for Aug was 4.3%
    UK & German CPI figures are comparable and use the same standard/methods (albeit with national
    implementation regimes) – the US use their approach.

    Liked by 1 person

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