Massimo Malvestio speaks to the Italian news portal “VeneziePost”

An inflation rate of 5% is "a completely uncharted terrain", a "dangerous game" that is comparable to "being on a lake of gasoline: as long as nobody lights a match, nothing happens". In an interview for "VeneziePost", the value investing expert Massimo Malvestio analyzed the effects of the recession and stressed that decision-making centers are less and less transparent nowadays.

Massimo Malvestio: the recession after one year

According to value investing expert Massimo Malvestio, the current situation as for the recession and the inflation can be portrayed as a lake of gasoline. He emphasized this in an interview he had one year ago with the Italian news portal "VeneziePost", in which he said that "if an inflation rate of 5% comes, it would mean that the huge stock of long-term and fixed-rate debt of banks, insurance companies and pension funds would suffer enormous losses". At that time, he explained how this is "a completely uncharted terrain", as "it has never happened that the money supply is multiplied without anything happening. I don't know what the result will be, we are playing a dangerous game". As he went on to explain, it is like "being on a lake of gasoline: as long as nobody lights a match, nothing happens". After one year, how did the situation develop? As Massimo Malvestio pointed out in another interview with "VeneziePost", that lake of gasoline is still there. "Inflation had already started before the Russia-Ukraine conflict, which only aggravated the problem", he observed, stressing that basically three factors have begun to prevail over the deflationary forces: "The first is the abnormal growth of the money supply, which was caused by the expansionary policies of central banks. The second factor concerns the demographic dynamics: baby boomers are on the way to retirement without there being a sufficient number of new people entering the world of work to replace them". The third factor lies in the ESG policies imposed by funds, banks and regulators on companies: this "has put investments in energy resources and raw materials far from the logic of the market".

Massimo Malvestio: an inflation rate of 5% will lead to a great redistribution of wealth

Massimo Malvestio also explained to "VeneziePost" that, if a serious crisis occurs, "for the first time in history there will be homogeneity in the situations and the conducts of banks, insurance companies and supervised entities in general". From this perspective, any errors "would not find compensation within the system, and the effects could be much less manageable". If inflation continues, "I don't think the ECB will be able to continue buying bonds to support the market as it has done so far". The interview was also the occasion for the value investing expert to stress that nowadays "decision-making centers are less and less transparent. Fund managers end up deciding what is ESG and what is not, and nobody knows who the people who take decisions are. Furthermore, their decision-making processes do not have the slightest transparency". The interview concluded with a reflection on the future: what to expect from the next years? According to Massimo Malvestio, "everything can be overcome" if the inflation rate returns to 1% or 2%. However, if it were to be around 5%, that "lake of gasoline" will catch fire anyway and this will lead to "a great redistribution of wealth".

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