Shareholders are looking anxiously at the current dangers.
Crude oil is becoming more and more expensive, putting a strain on industry and consumers. The current chip shortage is leaving deep marks on balance sheets. Bestselling author Marc Friedrich explains in a FOCUS Online interview how investors should react to the risks.
FOCUS Online: Mr. Friedrich, energy costs are going through the roof right now. Are we in crisis mode?
Marc Friedrich: Yes, what we are seeing here is a ticking time bomb. Winter will either be bitterly cold for consumers or extremely expensive. Actually, we can only hope that climate change will strike and that we will permanently have 17 degrees in winter.
FOCUS Online: So, detached from the sarcasm, we are heading for a major problem.
Marc Friedrich: Definitely in the medium to long term. Commodity and energy prices are skyrocketing. The price of electricity is currently more than 30 cents per kilowatt hour. That makes us the world champion once again. Many households are afraid of rising energy costs and quite rightly so! In the basket of goods, energy & housing is weighted at 32.5 percent, so it’s easy to figure out where inflation is heading.
FOCUS Online: In September, it was 4.1 percent in Germany.
Marc Friedrich: It’s going to get even higher, and the consumer is footing the bill, because the costs are passed on by the companies at the checkout. But it won’t stop there, because true inflation is more like 10 to 15 percent. Just take a look at real estate prices. In Stuttgart, they have risen by an average of 12.4 percent since the beginning of the year. The erratic price increases in asset classes such as shares, commodities, etc. are also continuing.
FOCUS Online: This is supposed to be only temporary, if you believe the economists and the ECB.
Marc Friedrich: Do you believe that? These are calming pills and pure window dressing. The supply chains have been disrupted for the long term, and that will be a constant concern for us in 2022. I don’t believe in a temporary effect, as the ECB would have us believe or some experts like Marcel Fratzscher. I wrote a whole chapter on this in my book and forecast inflation. That was no mean feat either, because in the last 800 years, inflation has always come a year after a pandemic. That coupled with loose central bank policy and historically high stimulus programs on the fiscal side is the ingredient list for a perfect storm.
FOCUS Online: Besides disrupted supply chains, are there any other reasons why you don’t believe this will happen?
Marc Friedrich: To be honest, no one in the industry expects this to be a temporary phenomenon in terms of inflation. For me, it’s enough to look at container ships: A few months ago, they were written off and worth nothing, now they are highly priced. The Baltic Dry Index …
FOCUS Online: …a price index for the worldwide transport of sea freight…
Marc Friedrich: … that’s right, it speaks volumes. We see immense price increases here, which shows the distortions and current problems. A good friend of mine who works in the container sector is also convinced that we will not return to normality before 2023.
FOCUS Online: Germany cannot be held responsible for the disrupted supply chains. But have we made a mistake with the energy transition?
Marc Friedrich: A historic mistake, even! But let’s take a pragmatic approach to this important issue. We can put 10 million solar panels on the roofs and build 5 billion wind farms. But the fact is: When it’s dark and there’s no wind, there’s no electricity, and if both do happen, we still have an immense problem: We can’t store this energy! First we need the storage buffers, then we build up the energy transition gradually. If coal is eliminated, we will give up 38 percent of our energy. That’s the way it’s going to be: First we sit in the dark, then the politicians realize that it won’t work with candles alone.
FOCUS Online: Are we sitting in the dark?
Marc Friedrich: Yes. More and more often, we have to intervene in the German power grid to prevent it from collapsing. What anyone hardly knows is that the European power grids are interconnected with 36 nodes. In the worst case, we will see partial blackouts in the next few years.
FOCUS Online: And return to nuclear power as a consequence?
Marc Friedrich: Nuclear power is inevitable and will definitely experience a renaissance. I have written a whole chapter on this in my current bestseller. If we are to achieve the Paris climate targets, there is no way around nuclear power. Even the IPCC recommends nuclear power. We need emission-free, base-load energy sources to secure our prosperity. The German go-it-alone energy transition was a gigantic, dangerous mistake—and not only completely pointless, but also expensive.
FOCUS Online: Do you think the French have understood it? They are ramping up the piles, while Germany is missing the boat.
Marc Friedrich: It’s not just France that has understood it, it’s rather the other way around: everyone gets it, except the Germans. Worldwide, 156 nuclear power plants are being built. 156! Even oil-rich countries in the Middle East are currently building nuclear power plants, and in Japan, nuclear power is being built again. France’s President Macron is proud of nuclear power, it is the main energy source, emission-free, environmentally friendly and climate neutral. And we are shutting everything down by 2030 without having an adequate solution ready—green utopia, that’s all I can think of.
FOCUS Online: Back to my question: Are we missing the boat?
Marc Friedrich: We already have. We were once the world leader in nuclear energy, in production and maintenance. Okay, Siemens is still a player in the market for maintenance, but other countries have outstripped us and invested sensibly in nuclear power. I have to say it again clearly: We are losing competitiveness at all corners because energy and raw material prices are too high. And there’s another problem.
FOCUS Online: What is it?
Marc Friedrich: The affordability of the government’s goals. I can see the pathos in front of the camera, but behind the scenes there are tax increases, a wealth tax and I think also an increase in the value-added tax. The money has to come from somewhere.
FOCUS Online: Not a good outlook for Germany as a business location, if it happens.
Marc Friedrich: Given the political choices, no great wonder. Not a single party has addressed the real problems in its election manifesto. Our inflationary monetary system and the demographic curve. That’s the next ticking time bomb, to stay in the image at the beginning of the interview. The baby boomers are retiring, people are getting older, and fewer and fewer young people are expected to carry the pension and welfare system. It’s a typical Ponzi scheme.
FOCUS Online: If I take an investor’s perspective: What should the investor do?
Marc Friedrich: Diversify and, in order to protect his purchasing power, one must invest in values limited by nature and mathematics in view of the endless debt incurred by the states and money printing by the central banks. I am not that optimistic about German stocks, if one can say that across the board.
FOCUS Online: And what do I do then?
Marc Friedrich: Go for limited values such as gold, silver, diamonds, commodities and Bitcoin. And if it has to be stocks, then consumer goods and commodities (oil, gas, energy, uranium, mines) are good options.
The content of this article was translated from the German original: https://www.friedrich-partner.de/blog-post/finanzexperte-im-focus-online-interview-marc-friedrich loaded 27.11.2021