London Daily

Focus on the big picture.
Saturday, Dec 20, 2025

0:00
0:00

We’ve not seen the end of stock market corrections or inflation

While investors flock to the tech sector, the persistent underinvestment in the real economy, such as commodities-related infrastructure, is now pushing up prices. At the same time, the factors driving the bull market – robust growth, rising corporate profits and buoyant financial liquidity – are no longer in play.

Call it the “hope springs eternal” or the “bigger fool” syndrome; either way, the idea being put about now by some stock pushers that markets may have hit the bottom or that inflation has peaked serves only to indicate the depth of their ignorance about what’s really going on in the global economy.

It’s high time they shed their belief that financial markets are predictable, rational or efficient and that some mysterious “hidden hand” guides markets towards an optimum allocation of resources. This is a dangerous myth that flies in the face of reality.

Consider, for example, a primary and yet largely unappreciated factor behind the recent surge in global inflation. Covid-19 and the Ukraine war are the usual suspects but, in fact, a huge deficit of investment in commodity production over many years is pushing prices through the roof.


The war in Ukraine has been one factor driving up prices of commodities but it’s not the only one.


Kenneth Courtis, former vice-chairman of Goldman Sachs Asia and chairman of commodity traders Starfort Investment Holdings, is expected to address this phenomenon in a speech at the upcoming 2022 Qingdao Global Venture Capital Conference in China. It deserves attention from the “inflation has peaked” dreamers.

What has this to do with stock markets? It is precisely because markets do such a poor job in directing savings into long-term investment that the current commodity crisis has developed. The same can be said of the massive deficits in funding to address climate change, and infrastructure and healthcare needs.

The fact that the tech boom has now become a “tech wreck” is a serious indictment of the failure of stock markets to allocate capital in a socially responsible way, and of their preference to indulge in hysterical orgies of speculation on glamour stocks and high-rolling entrepreneurs.

Yet another example of this short-sightedness – and another boom threatening to go bust – is ESG (environment, social and governance) investment. ESG funds have attracted vast amounts of investment in recent times and are now attracting attention from crimebusters worried about “greenwashing”.

There is no room here to go into detail on any of these gigantic excesses and failures of judgment, beyond saying that they all illustrate the damage created when sober analysis of socioeconomic and financial factors is usurped by a misguided faith in the infallibility of the marketplace.

Despite all this, the desire on the part of many commentators to gloss over the fundamental and structural failures of stock markets to provide a sound foundation for a nation’s finance would be awe-inspiring if it were not abysmal. They can only think of markets “getting back to business” again.

When analysts talk about stock markets, they are usually talking about Wall Street (just as, when they talk about inflation, they’re normally referring to US inflation). This is justified only in that Wall Street towers above others and its greed and fear-driven short-termism have become universal.

Pedestrians pass by the New York Stock Exchange in Manhattan, New York, on May 5.


A market plunge was inevitable once the tide of central bank liquidity began to recede. But now that there has been a modest correction, many people seem eager to persuade themselves that it is almost over, that markets are “bottoming out”, instead of trying to understand why this cannot be so.

There are three primary factors that have driven the bull market in stocks, which lasted for nearly a decade until a few months ago. These are: robust economic growth, consumption and investment; rising corporate profits; and buoyant financial liquidity. None of these are present any longer.

It is logical to expect market indices to continue falling, with the descent rate accelerating as anticipated recovery fails to materialise. The S&P 500 index may have corrected by some 20 per cent but it had risen by a staggering 90 per cent in the three years to 2021 – hardly a “correction”.

Meanwhile, inflation will continue to rise, as data from the European Union and the UK indicate (even if economist Paul Krugman is suggesting, rather improbably, that it may have peaked in the US). And that brings us back to the role that commodity prices are playing in inflation.

Shoppers walk along Oxford Street in London, on May 20. Inflation in the UK soared to 9 per cent in April, the highest rate in 40 years.


As Courtis observed in the speech notes he shared with me, for two decades investment has been skewed to hi-tech and high-growth digital sectors. Companies with scant earnings prospects have been bid up to astronomical valuations, generating enormous returns. But core innovations have now reached their limits.

Investors shunned the old economy and the “real stuff” such as commodities-related infrastructure, ports, railways, refineries, food processing, mines and smelters. The result has been two decades of underinvestment in sectors which are the very basics of life.

As Courtis noted, we now find ourselves in the precarious situation where we have so underinvested in the basics of the economy that we have started running into significant supply constraints in the production of energy, metals, agricultural products and related capacity.

The message, then, for stock markets is not to expect a return to anything like the status quo ante. First, there has to be a thorough shake-out of “new economy” detritus and then large-scale new investment in “old economy” essentials. Getting back to basics will be painful but salutary.

Newsletter

Related Articles

0:00
0:00
Close
Women in Partial Nudity — and Bill Clinton in a Dress and Heels: The Images Revealed in the “Epstein Files”
US Envoy Witkoff to Convene Security Advisers from Ukraine, UK, France and Germany in Miami as Peace Efforts Intensify
UK Retailers Report Sharp Pre-Christmas Sales Decline and Weak Outlook, CBI Survey Shows
UK Government Rejects Use of Frozen Russian Assets to Fund Aid for Ukraine
UK Financial Conduct Authority Opens Formal Investigation into WH Smith After Accounting Errors
UK Issues Final Ultimatum to Roman Abramovich Over £2.5bn Chelsea Sale Funds for Ukraine
Rare Pink Fog Sweeps Across Parts of the UK as Met Office Warns of Poor Visibility
UK Police Pledge ‘More Assertive’ Enforcement to Tackle Antisemitism at Protests
UK Police Warn They Will Arrest Protesters Chanting ‘Globalise the Intifada’
Trump Files $10 Billion Defamation Lawsuit Against BBC as Broadcaster Pledges Legal Defence
UK Says U.S. Tech Deal Talks Still Active Despite Washington’s Suspension of Prosperity Pact
UK Mortgage Rules to Give Greater Flexibility to Borrowers With Irregular Incomes
UK Treasury Moves to Position Britain as Leading Global Hub for Crypto Firms
U.S. Freezes £31 Billion Tech Prosperity Deal With Britain Amid Trade Dispute
Prince Harry and Meghan’s Potential UK Return Gains New Momentum Amid Security Review and Royal Dialogue
Zelensky Opens High-Stakes Peace Talks in Berlin with Trump Envoy and European Leaders
Historical Reflections on Press Freedom Emerge Amid Debate Over Trump’s Media Policies
UK Boosts Protection for Jewish Communities After Sydney Hanukkah Attack
UK Government Declines to Comment After ICC Prosecutor Alleges Britain Threatened to Defund Court Over Israel Arrest Warrant
Apple Shutters All Retail Stores in the United Kingdom Under New National COVID-19 Lockdown
US–UK Technology Partnership Strains as Key Trade Disagreements Emerge
UK Police Confirm No Further Action Over Allegation That Andrew Asked Bodyguard to Investigate Virginia Giuffre
Giuffre Family Expresses Deep Disappointment as UK Police Decline New Inquiry Into Andrew Mountbatten-Windsor Claims
Transatlantic Trade Ambitions Hit a Snag as UK–US Deal Faces Emerging Challenges
Ex-ICC Prosecutor Alleges UK Threatened to Withdraw Funding Over Netanyahu Arrest Warrant Bid
UK Disciplinary Tribunal Clears Carter-Ruck Lawyer of Misconduct in OneCoin Case
‘Pink Ladies’ Emerge as Prominent Face of UK Anti-Immigration Protests
Nigel Farage Says Reform UK Has Become Britain’s Largest Party as Labour Membership Falls Sharply
Google DeepMind and UK Government Launch First Automated AI Lab to Accelerate Scientific Discovery
UK Economy Falters Ahead of Budget as Growth Contracts and Confidence Wanes
Australia Approves Increased Foreign Stake in Strategic Defence Shipbuilder
Former UK Prime Minister Boris Johnson proclaims, “For Ukraine, surrendering their land would be a nightmare.”
Microsoft Challenges £2.1 Billion UK Cloud Licensing Lawsuit at Competition Tribunal
Fake Doctor in Uttar Pradesh Accused of Killing Woman After Performing YouTube-Based Surgery
Hackers Are Hiding Malware in Open-Source Tools and IDE Extensions
Traveling to USA? Homeland Security moving toward requiring foreign travelers to share social media history
UK Officials Push Back at Trump Saying European Leaders ‘Talk Too Much’ About Ukraine
UK Warns of Escalating Cyber Assault Linked to Putin’s State-Backed Operations
UK Consumer Spending Falters in November as Households Hold Back Ahead of Budget
UK Orders Fresh Review of Prince Harry’s Security Status After Formal Request
U.S. Authorises Nvidia to Sell H200 AI Chips to China Under Security Controls
Trump in Direct Assault: European Leaders Are Weak, Immigration a Disaster. Russia Is Strong and Big — and Will Win
"App recommendation" or disguised advertisement? ChatGPT Premium users are furious
"The Great Filtering": Australia Blocks Hundreds of Thousands of Minors From Social Networks
Mark Zuckerberg Pulls Back From Metaverse After $70 Billion Loss as Meta Shifts Priorities to AI
Nvidia CEO Says U.S. Data-Center Builds Take Years while China ‘Builds a Hospital in a Weekend’
Indian Airports in Turmoil as IndiGo Cancels Over a Thousand Flights, Stranding Thousands
Hollywood Industry on Edge as Netflix Secures Near-$60 Bln Loan for Warner Bros Takeover
Drugs and Assassinations: The Connection Between the Italian Mafia and Football Ultras
Hollywood megadeal: Netflix acquires Warner Bros. Discovery for 83 billion dollars
×