In the 1950s, Samuel Beckett, the 20th century’s most influential playwright, surprised the cultural world with Waiting for Godot. The two-act, absurd drama, written after the traumas of World War 2, introduces us to Vladimir and Estragon, two homeless personae who do not engage with anything while waiting for Godot, a character they are not sure to have ever met nor whether he will eventually arrive.

Time passes and no decisions are ever carried out. They babble, argue, make plans, but all efforts fizzle out and nothing is achieved. In the end, even their intended suicide is postponed.

This is the world we investors experience now. Financial actors – investors, governments, central banks, eco­nomists and financial reporters ‒ are witnessing a rapidly changing environment they cannot do anything about no matter what. As events unfold, we contradict each other how to make sense of them and what to do about it, if anything. We meander between decisiveness and inertia and wait.

Things big and small impact our economic reality. We have a good, if theoretical understanding of the impact of repeating, singular events. We know with certainty what to expect. If enough market participants sign up to such certainty, it will happen. But the interplay of multiple causes ‒ noisy,

violent and often surprising ‒ exceeds our predictive capabilities. We will never know the final outcome in advance. How events enforce each other, or how much they cancel each other out is unbearably random. Yet we opine in any case, because not waiting for Godot is even more terrifying.

I will give a few examples: Markets fluctuate with our daily changing views on inflation, economic growth and employment. We monitor all three, relying on ever more contradictory data as the come in, while trying to understand how growth, employment and inflation evolve and influence each other.

This is made harder by the fact that data collection is increasingly difficult and the statistical tools to interpret them rely on seasonal patterns which no longer hold true after Covid. As a consequence, frequent, retrospective revisions undermine the data’s validity.

Yet inflation is real. We recognise it when we shop. It is not an impediment to economic growth, though. Companies can thrive in an inflationary environment. It is households that suffer, shortchanged by inflation-induced falls in real income.

Their suffering corrodes political trust, societal coherence and social peace. If wage-earners try to fight back by demanding higher salaries a “loan-price spiral” evolves, turbo-charging inflation and further income loss.

In a last consequence money can lose its functionality. It is a curse central banks try to ban by reducing the supply of money (quantitative easing) and by raising interest rates. The idea is to increase the cost of doing business for all so painfully that it will cause unemployment and poverty.

As long as things stay as ambiguous as they are we should stay cautiously invested- Andreas Weitzer

This in turn will make further price rises unfeasible. The destitute will not buy anything anymore. Those companies still around will try to sell their wares as cheaply as possible.

Central banks have tightened the screws considerably since last year. Interest rates in the US, for instance, rose from 0.5% a year ago to 5.0% in April, the ECB from zero to 3.25%. This certainly had consequences.

Bond prices fell, causing losses, while yields rose, causing investors to put more money into fixed-rate instruments rather than low-yielding shares.

Pension funds in the UK, habitually worried about too low interest rates, loaded up on derivatives, insuring against rates falling even further. They lost a colossal amount of money on these bets and had to be rescued.

Banks, suffering a run on their cheap deposits and losses on their long-term investments listed, most notoriously regional US banks Silicon Valley Bank, Signature Bank, and lately, First Republic; all three had to be shut down by regu­lators. Even the mighty Swiss bank Credit Suisse has found its ignominious end. As a consequence, new lending has shrunk.

This all has brought down growth and inflation, but only marginally. You blink, and growth looks dire. You look again, and it is holding up.

Unemployment is still at its lowest in 40 years. Yet job openings, which last year exceeded job seekers by 10:1, are less crazy today, signalling a cooling labour market. Companies reporting their first quarter results show on average higher profit margins than in 2019, the year before Covid. Look again, and you see that their margins are falling for the seventh straight quarter.

Commercial real estate, in particular office real estate, is predicted to collapse any time soon. Yet bankruptcies have not happened and the interest differential between first-class borrowers and junk issuers is far from alarmingly wide.

Greece, the heavily indebted disaster child of the 2007-2008 global financial crisis, saw its economy grow 5.9% last year – after 8.4% in 2021. The eurozone as a whole grew by a miserly 0.1% in the first quarter of 2023.

House prices are falling. No, look, they’re edging up again. Not knowing what to make of all this, The Eco­nomist called it “the smile of Mona Lisa”. Does she smile? Does she mock us? And looking more closely, is she even a woman?

The pessimistic view is that as central banks look at yesterday’s data, they will overdo it and cause an unnecessary recession. Or they will abandon their fight against inflation prematurely as the fragile edifice of finance comes tumbling down on us, calling for yet another binge of quantitative easing.

The optimistic view is that central banks are winning already: prices are coming down, look at used car prices and energy, and forget about veggies and mayo and salad oil. Most important, Teslas get cheaper by the day. Soon the Fed and the ECB will declare victory and stop strangling us.

The realistic view is that consumers are not broke yet, that they are still put­ting up with higher prices imposed by PepsiCo, McDonald’s, Nestlé and such, and that only when consumer savings accumulated in Covid times are eaten up will we know the true picture. Equally, companies are awash with cash and can ignore higher finance costs, for now.

The wise view is we do not know, really.

Crucially, central banks are ill equip­ped to fight inflation, which might be here to stay. Too many factors are at work fuelling supply-side inflation.

Climate change will not only demand huge and costly investments to mitigate and to adapt to higher tempera­tures, it will also make many goods like agricultural products more scarce and expensive for the foreseeable future.

The scramble for raw materials essential for sustainable forms of energy generation will only intensify.

Ageing populations and falling life expectancy will increase labour deficits and hence wages.

To ignore the financial precariousness of developing nations will be more costly down the road.

The reversal of globalisation is perhaps our most costly experiment.

‘Decoupling’ from China will in all likelihood not slow down its competitive threat, but certainly increase the cost of anything we want to accomplish in trade, production and services, and slow down technological progress.

Sanctioning Russia and excluding it from our supply and demand chains has already proven to be expensive.

Dividing the world into friends and foes has a price expressed in inflation.

As long as things stay as ambiguous as they are, we should stay cautiously invested and ignore good advice, perhaps even this one.

What a world divided by more war will cost is beyond any predictability.

Andreas Weitzer is an independent journalist based in Malta.

The purpose of this column is to broaden readers’ general financial knowledge and it should not be interpreted as presenting investment advice, or advice on the buying and selling of financial products.

andreas.weitzer@timesofmalta.com