One year ago, value investing expert Massimo Malvestio had an interview with the Italian news portal “VeneziePost”, in which several important topics were addressed, including ESG policies, the upcoming recession and the rising inflation. What is the situation after one year? The news portal interviewed again the value investing expert with regard to this.
“If an inflation rate of 5% comes, it would mean that the huge stock of long-term and fixed-rate debt of banks, insurance companies and pension funds would suffer enormous losses”, Massimo Malvestio observed one year ago, stressing that this is “a completely uncharted terrain” as “it has never happened that the money supply is multiplied without anything happening. I don’t know what the result will be, we are playing a dangerous game”. On that occasion, he also pointed out that it is like “being on a lake of gasoline: as long as nobody lights a match, nothing happens”.
According to him, as of today, the “lake of gasoline” is still there, along with an inflation rate that is approaching double digits: “Inflation had already started before the Russia-Ukraine conflict, which only aggravated the problem”. As Massimo Malvestio emphasized in the interview, basically three factors have begun to prevail over the deflationary forces: “The first is the abnormal growth of the money supply, which was caused by the expansionary policies of central banks. The second factor concerns the demographic dynamics: baby boomers are on the way to retirement without there being a sufficient number of new people entering the world of work to replace them”.
As the expert went on to explain, a third factor can be found in the ESG policies that funds, banks and regulators imposed on companies: this “has put investments in energy resources and raw materials far from the logic of the market”, Massimo Malvestio explained, while adding that “the real problem is that decision-making centers are less and less transparent. Fund managers end up deciding what is ESG and what is not, and nobody knows who the people who take decisions are. Furthermore, their decision-making processes do not have the slightest transparency”.
In light of this situation, what can we expect from the future? In the interview with “VeneziePost”, Massimo Malvestio stressed that “everyone believes that the recession will bring back inflation. If its rate returns to 1% or 2%, everything can be overcome”. However, if the inflation rate were to be around 5%, that “lake of gasoline” will catch fire anyway and there will be a great redistribution of wealth.