Dirk Müller in an interview: Mr. Dax explains the German dilemma: Either prices explode – or interest rates
Dirk Müller is known to many under his pseudonyms “Dirk du Dax” or “Monsieur Dax”. In an interview with FOCUS Online, the stock market professional talks about rising inflation rates, future interest rate policy and why the metaverse will be the next big trend.
FOCUS Online: Mr. Müller, how are things on the financial markets? Inflation is rampant, interest rates are rising, the war in Ukraine is a burden, and China has many problems as well. Can it get worse?
Dirk Muller: Apart from the war in Ukraine, these are issues that have long preoccupied us but have so far been largely ignored. High inflation is only partly due to Russia’s war of aggression, as extreme injections of central bank liquidity have been going on for ten years. Now the subject comes to a head. These will be two dangerous and exciting years.
But the negative things are included in the courses, as long as there is no gas embargo or nuclear strike.
Miller: You might think so, but it’s just in your head. It’s like time-lapse mode. In truth, market movements evolve over several months. Look at the Lehman bankruptcy. In 2007, it was already clear that the real estate market was going to slide. But the climax came two years later. Or take Corona. In January 2020, it had long been known that the pandemic would also reach Europe and the United States. But it took a surprising amount of time for the markets to take the issue seriously. I expect extremely high fluctuations in the future.
To no one
Dirk Müller was a trader on the Frankfurt Stock Exchange for many years, where he earned his nickname “Mr. Dax”. Today he works, among other things, as an author and lecturer. Müller is also the founder of the financial information service provider Finanzethos GmbH with the brand core “Cashkurs.com”.
Not the right time to invest.
Miller: Investors should be careful as things like the energy shortage are certainly not fully priced in yet. And just looking at the clues paints a distorted picture.
Miller: Actions like Paypal or Facebook/Meta crashed, but that’s not reflected in the indices because heavyweights like Apple have remained stable so far or even reached new all-time highs. This is what makes this market special: stock picking is more in demand than ever. And the role of the US Federal Reserve cannot be overstated.
Because they are now raising interest rates.
Miller: Central bank balance sheets have been massively expanded since 2009. In 2018, there was a brief attempt to reverse this trend and markets came under direct pressure. And now the Fed wants to aggressively raise rates and withdraw cheap money at the fastest rate in decades. And if cheap money drove prices up, you can imagine what happens when the opposite happens. The Fed is responsible for 90% of long-term moves.
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How long will the Fed get away with this? There are many more people in the United States who have stocks as their retirement plan.
Miller: The Fed wants to break inflation. “We want to break the market,” he says. There have been a lot of gains in equities over the past few years, these funds create inflation. And if the prices go down now, I will reduce the purchasing power of the citizens. And we should not ignore the monetary side either.
The dollar rises as US interest rates rise.
Miller: But that’s not the only problem. Currencies in Japan, China and Europe are weak. In fact, China, Japan and soon also Europe should lower interest rates or at least not raise them in order to support the collapse of the economy. But then the imbalance with the United States increases even more. This creates inflation in both countries that they don’t need. In turn, they should actually react to this by raising interest rates in order to counter inflation. The problem is obvious: you can’t do both together.
Inflation is another problem: how long will it last?
Miller: It’s not going away anytime soon. And the reasons are home. When China hysterically limits a few Covid cases and countries allow incidences in the thousands, it’s hard to fathom. The effects in China are drastic: container ships that are stuck in traffic further fuel inflation. It is not mainly due to the extremely high demand, but the supply is not sufficient. And the war in Ukraine is fueling this inflation. Here, too, I do not expect a relaxation, but rather a direct confrontation with NATO over the Baltic States.
How should the ECB react to high inflation?
Miller: It finds itself in the same dilemma as Japan. If it does nothing, the euro will continue to sink. Or it can raise interest rates.
What countries like Greece or Italy should not like.
Miller: The high level of indebtedness of these countries is a problem, as well as in France – there the industrialists and Spain. And inflation will continue to rise if we buy commodities and pay in strong US dollars. As a result, inflation continues to heat up. We therefore have the choice between galloping inflation or rising interest rates. This will cause problems for businesses, which will increase the risk of bank failure.
Doesn’t that push people towards cryptocurrencies like Bitcoin?
Miller: I do not think so. The Bitcoin Chart can be placed 1:1 above the Nasdaq, which means the development is almost identical. Bitcoin is not used as a transaction currency, but is a pure risk investment by crypto players. With “risk on” everything increases, with “risk off” everything decreases. When people are scared, they don’t buy cryptocurrencies, they buy gold. It may be interesting for another year or two.
It remains to be seen what investors can do. Crypto isn’t good, neither are bonds, you can’t expect much from gold, real estate is expensive – now what?
Miller: At some point, the crisis will be over. So it makes sense to start looking for stocks now. Good stocks will come out of the crisis stronger because competition is disappearing from the market. And quite honestly: it’s a blessing for investors when things get cheap!
First of all, almost everything falls. Very few investors find this great.
Miller: You have to think long term. What are the topics for the next 10 years? Which business model is promising? And we have to adapt to it in good time. Bringing such businesses together cheaply when selling…an investor’s dream! We have been doing this for many years. The 150th issue of Cashkurs*Trends has just been published. To mark the anniversary, we are also offering all interested parties a free trial study to get to know each other. We have been collaborating for many years with the future institute of Dr. Eike Wenzel together and see which trending topics turn into future megamarkets. For example, we invested in 3D printing before most knew what it was.
What’s the new trend?
Miller: We believe in the metaverse. It’s going to be bigger than print and internet combined and could be a $12 trillion market.
So buy Facebook or Meta.
Miller: They belong to our Metaverse basket. But stocks like Tobii or Micron are also promising. Or a Paypal, which has recently been mercilessly punished, but which is interesting because it convinces with its data.
At the moment these tech values continue to fall…
Miller: It might be, but you never get to the bottom anyway. When I said six months ago that you could soon be buying exciting tech stocks 50% cheaper, I was declared mad. For years it only increased, no one could imagine such a crash.
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Stocks like Apple were spared, which argues in favor of the stock picking theory.
Miller: Microsoft too or Apple benefits from Metaverse, but I wouldn’t touch that now.
Miller: They are too expensive for me and are about to drop. Take Apple: they are not a platform, they sell physical objects. In the event of stagflation, this trend can also reverse and investors can take profits. Then there could be a half-price Apple.
What should I do if, for example, I find PayPal exciting.
Miller: When the markets go down, you should only buy stocks that you are sure will survive any crisis. I think it’s probably with Paypal. And if I buy X amount when the price drops 50%, I have my foot in the door. If the stock drops even lower, I buy again at minus 60% for the same X amount and again at minus 70%. So I get an attractive average price. And when the trend turns, it rises just as quickly.
But there are solid industries that are not penalized like that.
Miller: Of course, something like health for example. A Johnson & Johnson listed near its all-time high, a Merck is stable. These stocks are also not as affected by inflation. They have the market power to pass on the price increase. As you can see, no one can avoid real material assets. But now more than ever, you need to look at the details.
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