Lorna Tilbian Columnist T Clouds on the horizon Christmas presents ahead of the festive season. Human psychology he spectre of rising inflation is spooking the markets. at its damaging worst. There is a prevailing view in the market that the only This troubled backdrop is reflected in the market, where rising good news is bad news. In other words, fewer new bond yields have depressed highly valued tech stocks. When jobs created and higher-than-expected unemployment risk-free returns become available, it is harder to justify numbers are good news for the markets, as policy-makers will hold stratospheric valuations for future growth, especially as that o hiking interest rates and pulling back quantitative easing, which growth and its valuation are held back by the rising cost of money. have artificially propped up markets for more than a decade. Of Hence, the recent retreat of many of the expensive e-commerce course, the long-term repercussions of ever rising debt are too dire plays. to contemplate, but the cost of servicing the current debt pile with Interim results in September showed a slowdown in online rising interest rates in the absence of inflation eating away some of penetration as the population came out of house arrest and spent the debt is equally problematic. more time and money in the real world. Less demand for online At the time of the global financial crisis in 2008, the UK shopping, working and entertainment pushed back the growth government had 1tn of debt which, by the time of the global rates of the so-called Covid-19 beneficiaries, while the pandemicpandemic, 12 years later, had risen to 1.8tn. It now stands at induced delays in the supply chain reduced the flow of goods. And, 2.2tn after Her Majestys Treasury spent 407bn trying to as we know, its all about supply and demand. rescue our lives and livelihoods during the first 18 months of The global shortage of chips a notoriously cyclical commodity, the pandemic. even in the absence of global Tax rises, beyond that of corporation pandemics recently pushed the tax announced in March and National valuation of Apple, the worlds largest Insurance contributions in September, are inevitable, but tax rises have Less demand for online shopping, company, into correction territory (that is, down 20%) while bumping up repercussions on human behaviour working and entertainment and peoples propensity to work less pushed back the growth rates of the the valuations of second-hand car dealerships. Surely some mistake? The hard if they are keeping less of the so-called Covid-19 beneficiaries worlds finest business worth less and reward. So, tax rises will not help solve wheelers and dealers worth more? Its our debt problem and less so our supply and demand again, stupid. With long-standing productivity conundrum. electric cars and autonomous vehicles the future, the far-fromIt is calculated that every one percentage point rise in the base stupid person on the street is buying a second-hand car in the face rate will cost the Treasury another 25bn to service the national of supply shortages and delayed new models, and as a hedge on debt thats a lot of tax rises to service rising interest payments. future e-developments. To some, the only viable solution lies in the issue of a new corona Meanwhile, China, the worlds engine for growth of the past bond, like the war loans after World War II. This is parked in the 30 years, is facing its own property boom and bust. Evergrande, Bank of England for, say, 60 years, with a 50 basis points coupon the countrys second-biggest property developer, is struggling or 0.5% annual interest payments for long-term investors seeking a under a $300bn debt pile and threatening to default on its interest gilt-edged, risk-free return. payments. It is estimated that China has enough empty houses to Inflation and debt aside, what else is keeping investors awake at accommodate 90 million people. This could have far wider night? A growing litany of concerns, from supply chain disruption, implications beyond China, where it has had the domino eect of soaring gas prices, rising wage demands and looming tax hikes, to shutting out other developers from the global bond markets, with media-inspired panic at the petrol forecourts and supermarket only one developer successfully tapping overseas bond investors shelves. After panic buying loo paper and pasta last year and since the Evergrande crisis surfaced in September. It is an ill wind houses in the intervening year, encouraged by the stamp duty that blows from the east. holiday the great British public turned its focus towards hoarding 41 Impact ISSUE 36 2022_pp40-41_Lorna_Tilbian.indd 41 08/12/2021 10:10