Dr. Ehrhardt, first a look back: When the Covid pandemic broke out, you predicted a DAX level of 16,000 points for spring 2021. Did you just have a good glass ball?
No – and I’m not really a fan of fixed course targets. But in this case we had such an extraordinary monetary and fiscal policy situation that I thought we had to set an example. Because I’ve never seen before that the economy is boosted so strongly, especially from the monetary side. If a lot of money is printed suddenly, it has an immediate impact, especially on the stock markets. That is why I boldly set my sights on this very optimistic goal at the time.
Now we are almost there. Logical follow-up question: Where do we stand in the next few months?
I don’t expect a bear market, even though the best time of the year is probably behind us. Many investors have already invested; the fund managers’ cash holdings are only 3.9 percent according to the latest survey. A short-term correction is therefore possible. In the medium term, however, we should move in an upward trend, albeit a flatter one – with fiscal policy providing further tailwind. I hope that in Europe the focus will continue to be on fiscal stimulus and that the “black zero” will not be brought out again, especially in Germany. Because excessive fiscal restraint has not proven its worth in the past.
How big is the risk that we will get a bigger correction in the stock market?
That would be possible if the central banks began to slow down sharply. After the recent discussions by the US Federal Reserve, however, I think it has been understood that a 180-degree turn in monetary policy can damage the economy and the stock market – and will therefore be very careful. Of course, investors are already heavily invested, and there is also great optimism on the options market, but in my opinion there is still no clear background for a real bear market.
Earning money on the stock market doesn’t seem as easy as it did last year. Is this the active manager’s time?
Even if it sounds like a pro domo argument, it has been apparent for some time that active fund managers are doing better than index-based solutions such as exchange-traded funds (ETFs). Active managers beat the index by 70 percent in May. Why is that? Last year we saw that a very small number of large tech stocks from the US initially pulled the index up. Active managers are usually only allowed to invest a limited part of the fund’s assets in individual stocks. That’s why they couldn’t keep up. From November at the latest, however, the upswing took place on a broad front. There were numerous opportunities for active management, for example from a technical or valuation point of view, while passive investors were mainly invested in a few index heavyweights. I think that the stock pickers will be able to use their opportunities in the further course of the year and get some return.
The majority of the Fed is currently assuming the first interest rate hikes in 2023. Is it going to happen?
The market has recently reacted as if the 2023 rate hike was a done deal. If you listen carefully, however, Fed Chairman Jerome Powell has recently always emphasized the flexibility of monetary policy. Jobs come first, he keeps saying – and inflation comes in the second sentence. The US government is more worker-friendly than it used to be, and those responsible will be careful not to overdo it too quickly. I have not yet decided whether the interest rate hikes will come as expected.
US Treasury bond yields have been falling since April, while consumer and producer price increases have regularly exceeded expectations. How do you explain that?
If the bond market tends to be positive despite the sharp rise in inflation, this shows that investors there are apparently more skeptical of the economic outlook than many equity investors. But there are also special factors. For example, the US Treasury Department has done quantitative easing on a historic scale, over hundreds of billions of dollars – and that money needs to be invested. It is up to the banks, who mainly buy bonds. Once the money is out, the bond market could weaken again. Overall, the signals from the bond market are not enough for me to conclude that the US economy is weaker.
Do you think inflation will rise permanently?
In the short term, some negative inflation surprises are still possible. However, the situation could improve significantly over the next one to two years. We currently have goods inflation due to numerous bottlenecks. The market economy is so flexible, however, that when prices rise, production can rise quickly and goods prices go down again. In the long run, you might have to watch service inflation. But here too there is, for example, a huge untapped workforce in the USA, which could also keep service inflation within limits.
What’s next for the gold asset class?
I’m actually a huge gold fan. Because: The printing of money is a global long-term trend, and gold should benefit from it – especially when real interest rates are low. At the moment I’m still rather cautious, because gold production is increasing and more scrap gold is coming onto the market. In addition, insecure investors bought a lot of gold in the past year, especially in the form of ETFs, while traditional buyers, for example from India and China, have held back. ETF buyers are more likely to sell again as share prices rise, which would depress the price of gold. Chart technology also suggests a more cautious stance on gold.
In which direction is the US dollar going?
It is difficult to make a clear statement because there are opposing influences. In terms of purchasing power, the US dollar is overvalued, and the very high trade balance and national deficits in the US also suggest a weak US dollar. On the other hand, there are currently many dollar pessimists on the market – the US dollar is heavily shortened, which should support it in terms of market technology. In addition, money mostly flows into the country where the economy is doing best, and as the Americans continue to stimulate monetary and fiscal policy strongly, the US dollar will get a tailwind as a result. Overall, I expect the upside forces could prevail in the short term, while the US dollar will weaken against stable currencies such as the yen over the long term.
Which region do you prefer in the world?
Europe seems interesting at the moment. A lot has happened in terms of fiscal policy in Europe. Countries like Italy or France are spending more money, which makes sense in times of crisis and gives the region a tailwind. And since European stocks are often significantly cheaper than comparable US stocks, more funds should flow into the region. I also see the USA positively, even if market-technical exaggerations could lead to setbacks here. I would least overweight Asia. The Chinese money supply has risen relatively little for some time, and the excess liquidity is practically zero. In other words: There is no additional money going to the stock exchange. This also rubs off heavily on the environment, such as South Korea and Taiwan, and ultimately also on Japan, for which China is now the most important export market.
What about the sectors – value, technology, or both?
Today there are still some good tech values that not only show decent growth, but are also valued quite sensibly. On the other hand, in the value area we have stocks with reasonable valuations that are “underowned”, in which we have not yet massively invested. You don’t see total overheating in any area, value and tech can both be interesting – in the end you have to look at the individual titles, i.e. do stock picking, in order to be successful.
What does the current market situation mean for your dividend strategy?
I think dividends tend to be underestimated. Dividend stocks are a very good alternative to corporate and government bonds, especially in times when fixed-income bonds bring almost no interest. I also see the area better armed against unexpected negative monetary or geopolitical events. Defensive dividend stocks can offer shareholders relatively safe growth with less volatility and therefore remain interesting as a portfolio focus.