Longform'd. Anni Settanta: similitudini e differenze.
Non abbiamo alcun timore di smentita: Recce’d ha scritto e parlato con i propri interlocutori di stagflazione prima di chiunque altro, nell’ambito degli operatori sui mercati finanziari.
Ne sono testimoni prima di tutto i nostri Clienti. Poi tutti i nostri interlocutori sui mercati finanziari. Ed anche tutti gli amici che ci hanno contattato nel 2020 e nel 2021.
Ne è ovviamente testimone anche il nostro Blog.
Oggi, dopo quindi mesi dai nostri primi allarmi su questo rischio, ne scrivono e ne parlano tutti, ma proprio tutti tutti tutti.
Molti di questi non ne capivano granché quindici mesi fa, e capiscono ancora meno oggi. Altri, per fortuna, sono più qualificati.
Un esempio è il quotidiano The New York Times, dal quale noi abbiamo ricavato e selezionato la’rticolo che leggete di seguito.
Oct. 13, 2021
Vaccine mandates seem to be working, younger children may be approved for shots by Halloween, and the coronavirus appears to be in retreat. But those hopeful signs herald a messy new phase for the country’s economic recovery — and that’s putting Wall Street more on edge than it’s been in months.
The Federal Reserve has signaled it could begin dialing back programs that have helped prop up the markets for the past 18 months as soon as next month, while the breakneck pace of economic growth seems to be slowing, a fact underscored by a disappointing September jobs report.
And price increases that grew out of pandemic-related shutdowns and supply chain disruptions have been stubbornly persistent. A key measure of inflation released Wednesday, the Consumer Price Index, climbed 5.4 percent in September compared with the prior year — more than expected in a Bloomberg survey of economists and faster than its 5.3 percent increase through August.
“There’s a lot for the market to digest at one point in time and a lot of unknowns, frankly, that investors are grappling with,” said Matt Fruhan, who manages the nearly $3 billion Large Cap Stock Fund, as well as other funds, for Fidelity.
That uncertainty has halted the momentum that propelled stocks to a series of record highs over the summer. Last month, the S&P 500 endured its deepest drop — 4.8 percent — since the start of the pandemic. Investors have regained a bit of ground in October, but the market has been unable to muster any real momentum. After the inflation report on Wednesday, the S&P 500 slipped again in early trading, then swung back to close up 0.3 percent, snapping a series of three straight declines.
By any objective measure, it has been a good year for stocks, with the S&P 500 up roughly 16 percent through the end of trading on Tuesday. But the recent bumpiness reflects a growing uncertainty about the next chapter of the recovery-driven rally, with share prices swinging more from day to day — and even hour to hour — than they had in months.
The update on the American job market on Friday almost perfectly encapsulated the confusing economic backdrop that investors face: The number of new jobs fell far short of expectations, but wage growth rocketed higher.
“The rate of growth is moderating, yet the rate of inflation is increasing,” said Paul Meggyesi, a currency analyst with JPMorgan in London. “It’s an unusual decoupling.”
Many are looking to history to try to make sense of it, which is why Wall Street is chattering about the chances of a return of an economic specter from the 1970s: the toxic mix of sluggish economic growth and high inflation that came to be known as stagflation.
The comparison isn’t perfect. Back then, inflation hit double digits, and unemployment sat at nearly 9 percent. Neither inflation nor unemployment is anywhere near that high now.
But on Wall Street, the level of attention on stagflation is soaring. Last week, the volume of articles mentioning the term “stagflation” published by the financial news service Bloomberg hit a record, the company reported.
Mr. Meggyesi, who described the current situation as “stagflation lite” in a recent note to clients, is part of that surge of analysts reconsidering the idea, along with the risks it could pose to markets.
The most obvious echo is the surprising, and durable, rise in prices. As costs for things like lumber, microchips and steel climbed this spring, officials from the Federal Reserve took pains to say the rise would prove “transitory.” Once companies returned to normal, officials said, production would increase, supply lines and inventories would be replenished, and prices would fall.
But after a renewed round of economic disruptions caused by the Delta variant of the coronavirus — including many in key Asian manufacturing hubs such as Vietnam — there’s little sign that the upward pressure on prices is going away anytime soon.
A report this month showed that the Fed’s preferred gauge of inflation rose at the quickest pace in 30 years in August, and this week a measure of wholesale used car prices — an increasingly important factor in calculating inflation — hit a historic high.
The rise in prices worries investors for a couple reasons. For one thing, climbing costs can cut into corporate profits, a key driver of stock prices. Traders also worry that if inflation rises too fast, the Fed may lift interest rates to try to control it. At times in the past, rate increases from the Fed have tanked the market. Higher rates make owning stocks less attractive compared with owning bonds, prompting some investors to dump shares.
“I think the reason we’ve gotten more volatile is the market is starting to warm up to the belief that inflation is not as transitory as the head of the Federal Reserve keeps on telling us,” said John Bailer, a portfolio manager at Newton Investment Management, where he oversees mutual funds with more than $4 billion in client assets.
If anything, the upward pressure on prices seems to be growing.
In another echo of the 1970s — when stagflation dynamics were set off by the Arab oil embargo of 1973 — Russia has resisted increasing shipments of natural gas to Europe in recent months despite surging demand. That has sent prices up sharply, halting some industrial activity and producing painful energy bills in continental Europe and Britain.
Oil prices climbed to their highest level in seven years in recent weeks, after the powerful Organization of the Petroleum Exporting Countries moved to lift production only gradually. In Britain — where the term “stagflation” is generally thought to have originated — a fuel shortage last month that grew out of a shortage of truck drivers prompted panic buying and long lines at gas stations, another strange echo of the disorderly 1970s.
“Historically, stagflation has often been accompanied by oil shocks,” said Jill Carey Hall, a stock market analyst at BofA Securities. “There’s definitely a rising concern that we could be in that type of environment.”
The effects of the rise in oil prices have been less dire in the United States, but prices are also up for a variety of major commodities. The S&P GSCI Commodity Index, which tracks 24 traded commodities — like aluminum, copper and soybeans — rose to its highest level since late 2014 in recent days. That suggests inflationary pressures will pinch for a while longer.
The comparison between today and the 1970s seems to break down with the “stag” component of stagflation. By almost every measure, economic growth is expected to be remarkably strong this year.
Analysts polled by Bloomberg forecast that gross domestic product will grow 5.9 percent this year — a number that would be the best mark since 1984.
But predictions for growth are being dialed back. On Sunday, analysts at Goldman Sachs trimmed their 2021 growth forecast for the United States to 5.6 percent. It had been as high as 7.2 percent in March.
And on Tuesday, the International Monetary Fund lowered its 2021 global growth forecast to 5.9 percent, down from the 6 percent projected in July, while warning of the risks of supply chain disruptions feeding inflation. Its forecast for the United States was pared back to 6 percent, from the 7 percent growth projected three months ago.
Even so, Kristalina Georgieva, the managing director of the I.M.F., brushed off any talk of stagflation in an interview on Tuesday. Ms. Georgieva said that the world was experiencing a “stop and go” recovery, and that even if the United States was losing some of its considerable momentum, other areas — including Europe — were gaining it.
“We are not seeing the world economy stagnating,” she said. “We are seeing it not moving in sync across the globe.”
Steven Ricchiuto, chief U.S. economist at Mizuho Securities USA, said the breakneck growth of the first half of the year was never going to be sustainable. “Expectations have gotten out of line with reality,” he said.
But any sense of disappointment — despite numbers that are objectively good — may weigh on the market over the next few weeks, as major corporations begin to report their financial results for the third quarter.
G.D.P. growth is a key driver of revenues for major corporations. A slightly weaker economy could translate into lower sales numbers than expected, just as inflationary pressures mean climbing costs.
That has already been an ugly combination for some companies’ corporate profits. The share prices of several notable corporations — FedEx, Nike, CarMax and Bed Bath & Beyond among them — have been clobbered over the past few weeks after the release of disappointing quarterly reports.
Shares of Lamb Weston, an Idaho-based maker of frozen potato products, tumbled after it fell short of earnings expectations because everything from potatoes to cooking oils to packaging is more expensive. The company’s shares are down about 10 percent since it reported its results and revised its outlook last week, saying its profits would remain under pressure for the rest of the fiscal year.
“We had previously assumed these costs would begin to gradually ease,” said Bernadette Madarieta, the company’s chief financial officer, told analysts.
Other stocks could suffer a similar fate.
“People are going to be further disappointed,” said Mike Wilson, chief U.S. equity strategist at Morgan Stanley. “Even if the economy is OK, it may not translate into the kinds of earnings that people are expecting.”
L’articolo che avete appena letto vi aiuterà a mettere a fuoco le maggiori somiglianze, e le maggiori differenze tra gli anni Venti del nuovo Millennio e gli anni Settanta del XX secolo: ovviamente non tutto è uguale, e sicuramente risulterà diversa anche la reazione dei mercati finanziari.
Recce’d non è in grado di dire al lettore come andrà a finire: questa esperienza che stiamo tutti facendo è del tutto nuova, da più punti di vista.
Recce’d però è stata in grado di dirvi, già quindi mesi fa, che quella del “boom economico” era una balla, e che quella della “inflazione transitoria” era una sciocchezza.
E voi lettori, quali qualità andate cercando in un gestore di portafoglio?
Sul tema degli Anni Settanta abbiamo selezionato, per il nostro Longform’d, un secondo articolo, pubblicato questa volta dal settimanale The Economist.
Il nostro suggerimento è di leggere con attenzione anche questo articolo, ed in particolare di leggere con attenzione la parte finale, proprio per mettere voi stessi in condizione di cogliere al meglio le differenze e le somiglianze con gli Anni Settanta.
Ma soprattutto, potrà aiutarvi a comprendere perché allora, negli Anni Settanta, la situazione era molto, ma molto, più facile da risolvere di quella che oggi abbiamo davanti. Noi, ed i nostri investimenti in titoli.
It is nearly half a century since the Organisation of the Petroleum Exporting Countries imposed an oil embargo on America, turning a modest inflation problem into a protracted bout of soaring prices and economic misery. But the stagflation of the 1970s is back on economists’ minds today, as they confront strengthening inflation and disappointing economic activity. The voices warning of unsettling echoes with the past are influential ones, including Larry Summers and Kenneth Rogoff of Harvard University and Mohamed El-Erian of Cambridge University and previously of pimco, a bond-fund manager.
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Stagflation is a particularly thorny problem because it combines two ills—high inflation and weak growth—that do not normally go together. So far this year economic growth across much of the world has been robust and unemployment rates, though generally still above pre-pandemic levels, have fallen. But the recovery seems to be losing momentum, fuelling fears of stagnation. Covid-19 has led to factory closures in parts of South-East Asia, hitting industrial production. Consumer sentiment in America is sputtering. Meanwhile, after a decade of sluggishness, price pressures are intensifying (see chart 1). Inflation has risen above central-bank targets across most of the world, and exceeds 3% in Britain and the euro area and 5% in America.
The economic picture is not as bad as the situation during the 1970s (see chart 2). But what worries stagflationists is less the precise figures than the fact that an array of forces threatens to keep inflation high even as growth slows—and that these look eerily similar to the factors behind the stagflation of the 1970s.
One parallel is that the world economy is once again weathering energy- and food-price shocks. Global food prices have risen by roughly a third over the past year. Gas and coal prices are close to record levels in Asia and Europe. Stocks of both fuels are disconcertingly low in big economies such as China and India; power cuts, already a problem in China, may spread. Rising energy costs will exert more upward pressure on inflation and further darken the economic mood worldwide.
Other costs are rising too: shipping rates have soared, because of a shift in consumer spending towards goods and covid-related backlogs at ports. Workers are enjoying greater bargaining power this year, as firms facing surging demand struggle to attract sufficient labour. Unions in Germany, for instance, are demanding higher pay; some workers are going on strike.
Stagflationists see another similarity with the past in the current policy environment. They fret that macroeconomic thinking has regressed, creating an opening for sustained inflation. In the 1960s and 1970s governments and central banks tolerated rising inflation as they prioritised low unemployment over stable prices. But the bruising experience of stagflation helped shift thinking, producing a generation of central bankers determined to keep inflation in check. Then, after the global financial crisis and a period of deficient demand, this single-minded focus gave way to greater concern about unemployment. Low interest rates weakened fiscal discipline, and enabled vast amounts of stimulus during 2020. Now as in the 1970s, the worriers warn, governments and central banks may be tempted to solve supply-side problems by running the economy even hotter, yielding high inflation and disappointing growth.
These parallels aside, however, the 1970s provide little guidance to those seeking to understand current troubles. To see this, consider the areas where the historical comparison does not hold. Energy and food-price shocks typically worry economists because they could become baked into wage bargains and inflation expectations, causing spiralling price rises. Yet the institutions that could underpin a new, long-lived era of labour strength remain weak, for the most part. In 1970 about 38% of workers across the oecd, a club of mostly rich countries, were covered by union wage bargains. By 2019, that figure had declined to 16%, the lowest on record.
Cost-of-living adjustments (cola), which automatically translate increases in inflation into higher pay, were a common feature of wage contracts in the 1970s. But the practice has declined dramatically since. In 1976 more than 60% of American union workers were covered by collective-bargaining contracts with cola provisions; by 1995, the share was down to 22%. A paper published in 2020 by Anna Stansbury of Harvard and Mr Summers argued that a secular decline in bargaining power is the “major structural change” explaining key features of recent macroeconomic performance, including low inflation, notwithstanding the decline in unemployment rates over time. As dramatic as the pandemic has been, it seems unlikely that such a big shift has reversed so quickly.
Moreover, stagflation in the 1970s was exacerbated by a sharp decline in productivity growth across rich economies. In the decades after the second world war, governments’ commitment to maintaining demand was accommodated by rocketing growth in productive capacity (the French called the period “les Trente Glorieuses”). But by the early 1970s the long productivity boom had run out of steam. The habit of stoking demand failed to help expand productive potential, and pushed up prices instead. What followed was a long period of disappointing productivity growth.
Since the worst of the pandemic, however, productivity has strengthened: output per hour worked in America grew at about 2% in the year to June, roughly double the average rate of the 2010s. Booming capital spending could mean such gains are sustained.
Another important break with the 1970s is that central banks have neither forgotten how to rein in inflation nor lost their commitment to price stability. In the 1970s even some central bankers doubted their power to curb wage and price increases. Arthur Burns, then the chairman of the Federal Reserve, reckoned that “monetary policy could do very little to arrest an inflation that rested so heavily on wage-cost pressures”. Research by Christina and David Romer of the University of California at Berkeley suggests that Mr Burns’s view was a common one at the time. But the end of the era of high inflation demonstrated that central banks could rein in such price rises, and this knowledge has not been lost. Last month Jerome Powell, the Fed’s current chairman, declared that, if “sustained higher inflation were to become a serious concern, we would certainly respond and use our tools to assure that inflation runs at levels that are consistent with our longer-run goal of 2%.”
The new fiscal orthodoxy likewise has its limits. Budget deficits around the world are forecast to shrink dramatically from this year to next. In America moderate Democrats’ worries about excessive spending may mean that President Joe Biden’s grand investment plans are pared down—or fail to pass at all.
What next for the world economy, then, if it does not face a 1970s re-run? Rocketing energy costs pose a serious risk to the recovery. Soaring prices—or shortages, if governments try to limit rises—will dent households’ and companies’ budgets and hit spending and production. That will come just as governments withdraw stimulus and central banks countenance tighter policy. A demand slowdown could relieve pressure on supply-constrained sectors: once they have paid their eye-watering electricity bills, Americans will be less able to afford scarce cars and computers. But it would add a painful coda to nearly two years of covid-19.
Another important respect in which the global economy has changed since the 1970s is in its far greater integration through financial markets and supply chains; trade as a share of global gdp, for instance, has more than doubled since 1970. The uneven recovery from the pandemic has placed intense stress on some of the ties binding economies together. Panicking governments could hoard resources, causing further disruption.
Past experience, therefore, is not the clearest lens through which to view the forces buffeting the global economy. The world has changed dramatically since the 1970s, and globalisation has created a vast network of interdependencies. The system now faces a new, unique test. ■
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An early version of this article was published online on October 5th 2021