Changes in our economic environment

Under the USD 659 billion Paycheck Protection Program USD 521 billion in company loans had been provided at favourable terms.

Co-founder and CIO at Flossbach von Storch

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The US government has put together economic stimulus packages worth USD three trillion that can be further increased, if necessary. By 30 June, for example, under the USD 659 billion “Paycheck Protection Program” (PPP) alone, USD 521 billion in company loans had been provided at favourable terms allowing the loans to be fully or partially forgiven if certain criteria are observed, such as maintaining employee jobs.

quarterely-report

The Coronavirus crisis has changed the world permanently. It accelerated trends that were already in progress, such as digitalisation and increasingly flexible work arrangements. But it also revealed weaknesses in companies and their business models. Some sectors will have to battle with the negative effects for a long time to come, and some companies will fail due to the crisis. Other companies have proven to be Covid resistant, and some are even enjoying sustained benefits from changes in consumer demand and investment activity caused by the Coronavirus.

Bert Flossbach
Bert Flossbach

Government aid packages and economic stimulus programmes were able to prevent an economic collapse. Countries will take additional measures, if necessary, and will be able to fund them at zero cost given the low level of interest rates. This will, however, rapidly increase national debt to new record levels. Central banks are therefore trapped by their ultra-loose interest-rate policy and doomed to provide the world with cheap money and emergency assistance ad infinitum.

More and more investors are recognising that zero interest rates will be permanent and are thinking about possible investment alternatives. The simultaneous “all in” by countries and central banks will likely cause a return of inflation in the medium term and increase the need to protect assets against this risk, which has not been a problem for a long time. In our view, shares of growth companies with resilient earnings are the best asset class for this purpose

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Changes in our economic environment