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“Unfortunately civility is hard to codify or legislate, but you know it when you see it. It’s possible to disagree without being disagreeable.”
Sandra Day O’Connor

Much of the so-called developed world is rapidly or about to begin losing population, with Japan and Italy perhaps the most glaring examples and, oddly, the US not far behind (cover and first graph below).

The last four weeks have been full of important events, the most visible of them linked to the wars in Ukraine and the Middle East. Looking at what financial markets did over the same period you would have never guessed much had happened.

The last couple of weeks made us feel like we returned to the horrible 2022: both equities and bonds were down and in a significant way.

Despite another expected rise in official rates (in the Eurozone), equities outperformed bonds last week, maybe because investors think (or hope) that every successive tightening brings us closer to the end of the monetary cycle.

For the past few months the basic story (I should say ‘theme’ but I hate the word) in the markets has been the same, causing rising discomfort pretty much everywhere.

On inflation again and on why it is so difficult to think of it as moving in a unique direction or as a simple monetary issue. —

As some of you know, I’ve been skeptical of the possibility that inflation would soon return to where it was before COVID. My idea was that the historical long-term averages (broadly 2-4% per year) would eventually prevail. Two events now could force me to change my mind, at least temporarily.

Even on a hot summer day you have to wonder whether we will ever go back to working in an office as we did before, air-conditioning and all. Builders are getting the message.

Recent nervousness in the bond market and oscillating monetary policy expectations are beginning to bother equities. How long-lasting this effect will be is anyone’s guess; but while the focus is on earnings and especially quarterly results, it is useful to ponder what a more restrictive fiscal policy may mean for the direction of stock prices (see cover graph).