The aftermath of the “stagflation” of the 1970s was terrible. (© Adobe Stock)
In a recent study, the strategists at Deutsche Bank Research recall the damaging effects of too rapid a price increase on the economy and the financial markets.
Henry Allen and Jim Reid of Deutsche Bank Research went back in time to observe how markets reacted to the “stagflation” of the 1970s (economic stagnation and high inflation).
In real terms (excluding inflation) it’s been a ‘terrible’ time for stocks and bonds in most countries.
For example, the S&P 500 had a negative real performance (excluding inflation) of 1% per year (+6% nominal) during the 1970s, compared to a positive annualized real performance of 8.9% between January 1, 1980 and the end of December 2021 .
French stocks fell 2% pa in real terms (+7% nominal), German stocks fell 3% pa in real terms (+2% nominal) and Italian stocks fell 14% pa in real terms (-3% nominal).
Among the few exchanges whose annualized inflation-adjusted performance has been positive are Canada (+3% per year), Japan (+3%) and Norway (+5%).
The real performance of the 10-year US T-note was also negative by 1% per year in the 1970s, but the nominal yield at that time was 7.5%, significantly higher than today (3.4%).
Structural factors favoring higher prices
In 2022, several factors are fueling inflation: the high level of debt, the restrictions
Read more at LeRevenu.com