The failure of SVB to plan properly its duration strategy spells trouble for the greater industry. Not only draws this event us back into the hard reality, but it is also big warning for global economies, states, private individuals that things have materially changed.
Our major concern is not about bankruptcies, downsizing, and other economic reshuffles to adopt to new conditions. No, it is more about the difference between growth rate and the net interest rates.
Historically, and in particular since the launch of the Euro, the real interest rates (so corrected for inflation) have been lower than the growth rate. Thereby, there was passive wealth creation which benefited everybody. Now, with interest rising and the inflation stubbornly high, the difference versus the growth rate is negative.
While short-term negative differences go unnoticed, we believe that the present economic outlook suggests the foreseeable future showing negative difference. Consequently, this means that there is a true wealth destruction taking place. We would expect this process to last several years; regions which we expect to be hit hardest are low growth regions, in particular Europe. The exact consequences are unclear as now, but together with an aging population, important challenges are awaiting our economic and political leaders.