“Industrialized Countries Face High Inflation: Oil Fund Manager Nicolai Tangen Warns of Consequences”

In the last year and a half, practically all industrialized countries have had to deal with high inflation, which had not been witnessed since the 1980s. The rise in prices has been met with strong interest rate hikes from the world’s central banks – and they are not done yet.

Oil fund manager Nicolai Tangen is among those who have been concerned about the consequences for the world economy and markets. It has been Tangen’s view that interest rates will remain higher than the market believes.

In a recent interview with Swiss trade newspaper Tangen talks again about the risk of precisely this.

– The indicators that affect inflation speak for it: Rising wages, for example. And we are experiencing so-called “greed inflation”, where companies overcompensate for inflation in pricing, to a certain extent, says Tangen to the newspaperand adds that deglobalization and the energy transition will also lead to higher price pressure.

Tangen will not elaborate on the comment to DN, says the Oil Fund’s communications director Line Aaltvedt.

Profit margins increase

The record low interest rates in recent years contributed to record earnings for the world’s listed companies, which lifted the stock markets to new heights. Although monetary policy has now turned 180 degrees, and investors can thus get a reasonable return on fixed income investments, the global stock market has only fallen 13 percent from its peak.

The fact that the stock market has held up well after all is probably due to the profit aspect that Tangen is focused on, believes Nordea’s investment director, Robert Næss.

– Profit margins have increased from 2022, so earnings and margins are now record high. The first phase of inflation has been good news for companies. If we look at the earnings estimates for all the listed companies, excluding the energy and raw materials companies, earnings growth of five percent is expected, says Næss to DN.

Inflation is, after all, the companies that sell, Næss points out. The long-term real interest rates have certainly increased sharply, but so far things are going just fine. The announced recession is constantly being postponed.

– People still have money, and then companies can raise prices. There are areas where there really is a crisis, where people have very little money and companies cannot raise prices, but the first phase of inflation has gone perfectly well for the companies, says Næss.

In 2021 and 2022, the prices of “everything” skyrocketed, partly as a result of the reopening after the pandemic and the Ukraine war, which gave companies a rush to increase prices.

Freight rates, energy prices and raw material prices have, however, fallen sharply, but Næss points out that companies are not always as keen on price reductions.

– Before inflation came, there was talk that inflation would be negative for companies, but historical contexts do not give a clear picture of this. It is only if there is extremely high inflation or deflation that it is negative, he says.

Have warned

On the whole, Tangen has kept to a gloomy tone over the past year when he has commented on markets that have been severely affected by the war in Ukraine, the energy crisis and unrest around inflation and interest rates.

Tangen has previously presented a horror scenario in which the fund could fall by around 40 per cent. He has also expressed that the return will probably be very low in the coming years, precisely because of the changes seen in monetary policy, geopolitics and energy. Tangen explains to Handelszeitung that the market is now pricing in sunny days.