Good morning,

Investment markets continue to be very volatile.

The main cause is inflation.

Some economists talk about demand and supply-side inflation, but it comes to the same thing – prices going up, which reduces the purchasing power of money.

Once inflation becomes entrenched its very hard to dislodge –  rising prices in the supply chain leads to rising prices for end products and demands for higher wages.

Central banks around the world are tightening the money supply by increasing interest rates – basically making money more expensive.

Money has been ‘cheap’ for a long time, and Covid made this money even more ‘cheap’ with the Reserve Bank Cash Rate previously at 0.1%.

We are now seeing this being unwound and more quickly than many market commentators expected.

• In the United States inflation is now 8.3%, in March 2021 it was around 2%.
• In Australia its now 6.2%, it was also around 2% in March 2021.

Some commentators (although less now) believe this is transitory. We do not share this view and believe this is a fundamental shift.

The implications to date have been a significant rerating for growth stocks.

That is companies that are growing their profits into the future – technology stocks are principal among them.

The NASDAQ index (Amazon, Microsoft, Netflix etc)  is off 25% in the last year.

Government Bonds have also had a very difficult year as quickly rising interest rates cause the holders of bonds that are fixed a lower rate

than the current interest rate to lose value. This is why many diversified conservative funds have had unusually poor returns.

At Ethos, we were aware of this possibility and have generally had a low allocation to government bonds.

All in all, it’s a challenging period for all asset sectors, including residential property.

We are focused on protecting capital.

Please let me know if you would like more detail on your investments or have any questions.

Regards,

John