From the archive. First published on 22 February 2022 on weprivate.com.au. It reflects markets, rules and our views at that time and has not been updated. Interest rates rose sharply from May 2022, so the central call here did not play out as expected. Our current philosophy is set out on How we invest.

The lower-for-longer theme faced its greatest challenge yet last year. The tussle between labour and capital for the spoils of growth was laid bare by a crisis that hit the poorest hardest while big business got bigger, and addressing income and wealth inequality moved up the agenda.

Much has changed in two years, but our view is that the structural trends behind lower growth, lower interest rates and lower inflation are still in place, and have been strengthened.

Big government

Governments around the world have been growing since the mid-1990s, and the past two years were a big step up. Government can create a good environment for business by building productive infrastructure and enforcing the rule of law. But government doesn’t create wealth. The private sector does, and innovation happens inside companies, not bureaucracies.

Infrastructure spending has picked up. The US$1 trillion US infrastructure program will be spent over 10 years, and will still leave a US$2.6 trillion infrastructure gap, according to the American Society of Civil Engineers. Across the G20, higher public debt has been associated with lower growth, inflation and bond yields.

Big debt

Global debt rose by US$36 trillion during the pandemic to a record US$300 trillion, the largest, fastest and broadest of four global debt waves since 1970. Economies are now more sensitive to interest rates than ever, which we argued would limit how far central banks could raise them.

Big business

The biggest winners of the past two years were the largest companies. The combined market value of Meta, Alphabet, Amazon, Microsoft and Apple rose from just under US$5 trillion before the pandemic to almost US$10 trillion by early December 2021. According to Bloomberg, the world’s top 50 companies now account for 28% of global GDP, up from 12.7% a decade ago, and the number of technology companies among them has risen from 8 in 2010 to 21.

Big technology companies tend to be capital-light and intellectual-property heavy, and employ fewer people. Quantitative easing favours capital over labour: by lowering yields it taxes savers and inflates the valuations of growth companies. Apple alone bought back US$435 billion of its own shares over eight years.

Despite efforts to address inequality and lift productivity, we believed the forces behind lower for longer remained firmly in play.

General information only. It does not take into account your objectives, financial situation or needs. Past performance is not a reliable indicator of future performance.