Ucraina: un evento storico, non il solo evento storico del 2022

Tutta la simpatia di noi di Recce’d va alle vittime del conflitto che si è scatenato in Ucraina, e da sempre pensiamo che la guerra è una tragedia da evitare ad ogni costo.

Non sempre è evitabile, questo lo sappiamo: ed è per questa semplice ragione, che ci leggete qui intenti a fare il nostro lavoro, anche quando la nostra emotività ci porterebbe a impegnarci a favore delle vittime di questa tragedia.

Il nostro lavoro ci impone, in momenti come questi, di mantenere al massimo la lucidità, la concentrazione sui temi sui quali dobbiamo risposte ai nostri Clienti, ed una visuale il più ampia possibile, anche al di là del conflitto bellico.

Il nostro lavoro ci impone di ricordare, ai Clienti ed in questo Post anche ai lettori, che la guerra NON costituisce, oggi nel marzo 2022, il principale problema che i mercati finanziari si trovano di fronte. Non è quello dell’Ucraina, e lo vedrete, il tema centrale di questo 2022: non dipenderanno da questo (e lo scrivevamo proprio qui nel Blog già alcune settimane fa) i rendimenti ed i rischi delle diverse classi di attività finanziarie nel 2022.

O meglio, non dipenderanno PRINCIPALMENTE da questa vicenda, bensì soprattutto da altre vicende.

Non ci dilunghiamo: l’incalzare dell’attualità ci costringe questa settimana ad un utilizzo molto attento dei tempi, che per noi sono strettissimi data la grande mole di lavoro che dobbiamo fare per i Clienti.

Ci faremo quindi aiutare: il nostro lavoro di raccolta e selezione delle informazioni per il Cliente ci consente di individuare i commenti più utili ad anticipare gli sviluppi dei mercati finanziari, ed alcuni di questi (una piccola parte) li pubblichiamo poi nel nostro Blog.

L’articolo che segue vi può essere utile per una serie di ragioni: tra le tante, noi vi segnaliamo con questo articolo che il conflitto in Ucraina non è il solo evento storico a cui state assistendo.

Ha ragione chi dice, alla Tv, che il conflitto in Ucraina è storico perché è il primo conflitto di questo tipo in Europa dalla Seconda Guerra Mondiale. Ma, pensando al nostro portafoglio in titoli, ed ai nostri investimenti sui mercati finanziari, a nostro giudizio risulta ancora più “storico” l’errore fatto dalle Banche Centrali sull’inflazione.

Che cosa lo dimostra? Il fatto che, per ritrovare un episodio della medesima gravità, è necessario ritornare a prima, della Seconda Guerra Mondiale. Al periodo tra le due Guerre Mondiali.

Il titolo dell’articolo, giustamente, è il seguente: “L’errore storico della Federal Reserve”.

CAMBRIDGE, England (Project Syndicate)—A close friend who has been incredibly successful in his tech career once observed that an initial suboptimal decision is likely to lead to a series of subsequent bad decisions. Economists call this “multiple equilibria.” And the Federal Reserve, the world’s most influential monetary institution, finds itself in the midst of such a situation regarding inflation—with implications that extend well beyond U.S. economics and finance.

The initial phase of the Fed’s ongoing inflation mistake—an error that will likely be remembered as one of its biggest ever—started with last year’s protracted mischaracterization and dismissal of price increases as “transitory.” Although evidence of persistently high inflation dynamics was increasingly visible, the Fed repeatedly dismissed these signs, failing, most notably, to heed the warnings expressed by firms on one earnings call after another.

Double down on the wrong policy

It is not entirely clear what was behind the Fed’s initial misstep on inflation. What remains baffling is that, for most of 2021, policy makers seemed eager to double down on their “transitory” claim, rather than show humility as their inflation forecasts were revealed to be repeatedly and spectacularly wrong.

Even today, officials are hindering the restoration of the Fed’s badly damaged credibility by not explaining why they made this protracted mistake. I suspect the reason involves some combination of cognitive capture, loss of focus, unwillingness to admit error, and reluctance to abandon a “new monetary framework” that quickly became outdated and counterproductive.

It was not until the end of November 2021 that Fed Chair Jerome Powell—finally and belatedly—declared it was time to “retire” the word “transitory.” But then came the second stage of the Fed’s multifaceted blunder. The policy adjustments that followed Powell’s statement were extremely modest, with the Fed announcing only that its large-scale asset-purchase program, known as quantitative easing (QE), would be wound down entirely by March 2022.

Losing control of narrative

That was the time for the Fed to do two things to restore its inflation credentials and retain adequate control of its policy narrative. First, it should have explained why it messed up its inflation call so badly and how it had adjusted its forecasting models to be less wrong in future. Second, the Fed should have taken significant initial policy steps and provided guidance about what would follow.

Having failed to do either, the Fed then entered the third stage of its historic mistake by losing control of the policy narrative just as inflation readings were getting worse.

Nothing highlighted better the big hole that the Fed had dug itself than the fact that, as late as February 2022, it was continuing its QE liquidity injections, even though inflation was running at 7.5%, a 40-year high. Astoundingly, and despite calls to act, the Fed had rejected an immediate halt to QE at both its December and January policy meetings.

All of which brings us to today. Inflation readings continue to surprise on the upside, and Russia’s invasion of Ukraine will increase the risk of a stagflationary shock. Meanwhile, Fed officials have offered different views publicly regarding how the central bank should approach both interest-rate hikes and reducing its bloated $9 trillion balance sheet.

Lacking any proper guidance from the Fed, the market rushed to price 7 to 8 rate hikes in 2022 alone. Some Wall Street analysts went as far as 10, including a 50-basis-point hike as soon as the Fed’s mid-March meeting. Others urged the Fed to implement an emergency intra-meeting rate increase.

You can’t get there from here

The Fed’s suboptimal decisions over the past 12 months mean that its next policy decision also is likely to be suboptimal. Even if it had a good feel for the current “first best” policy response, the Fed is unlikely to be able to implement it, given how far policy makers have fallen behind economic realities. To paraphrase the old Irish joke, you can’t get to a first-best policy starting from here.

Rather than being able to deliver a smooth landing for the U.S. economy, the Fed must now judge what constitutes the least harmful alternative. Such a choice is like being forced to select an already dirty shirt because no clean ones are available anymore. And that is not a good look.

Mohamed A. El-Erian, president of Queens’ College at the University of Cambridge, is a professor at the Wharton School of the University of Pennsylvania and the author of “The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse” (Random House, 2016).

This commentary was published with permission of Project Syndicate — The Fed’s Historic Error

La nostra intenzione, con questo Post ed attraverso la lettura dell’articolo precedente, è precisa: vogliamo ricordare ai nostri lettori che NON è dai titoli dei TG che potete ricavare le informazioni che sono le più importanti per le vostre scelte di investimento.

Oggi, tutta l’attenzione si concentra, comprensibilmente, sull’Ucraina. Ma voi, in quanto investitori, non potete permettervi di andare in confusione.

Oggi, per noi e voi e per tutti gli investitori, ci sono altri temi, che avranno in prospettiva un impatto ancora maggiore sui vostri investimenti e quindi sui vostri guadagni o perdite.

La nostra intenzione, quindi, è quella di esservi utili, nello stabilire un giusto ordine di importanza e di priorità.

Tra i lettori del nostro Blog, non sono molti quelli che hanno vissuto le precedenti esperienze delle economie occidentali con l’inflazione, ed in particolare l’esperienza dell’iperinflazione tra le due Guerre Mondiali. Proprio per questa ragione, noi offriamo in lettura qui sotto un’utile articolo di Martin Wolf, che aiuterà il nostro lettore a collocare il problema di cui ha letto nell’articolo precedente nella giusta prospettiva storica.

E’ appropriato definire storico l’errore commesso dalle Banche Centrali, come si faceva nell’articolo qui sopra. Per noi investitori adesso si tratta di capire se risulteranno storiche anche le conseguenze di questo errore, ed in quale ambito.

Perché Recce’d insiste proprio su questo punto? Per una ragione pratica: l’investitore che oggi non è consapevole di essere di fronte ad un evento storico, cade nella trappola di quelli che dicono che “tutto va avanti come sempre”, ed opera sul proprio portafoglio titoli come se tutto dovesse andare avanti “come sempre”. E’ un grave errore.: stiamo affrontando una fase di cambiamento radicale, una fase storica, e lo capirete bene leggendo l’articolo che segue. E, nel caso eventuale in cui questo secondo articolo non sia sufficiente, allora dopo l’articolo abbiamo pubblicato, in una immagine, una parte dell’Audizione di Jerome Powell della settimana scorsa al Congresso. Che elimina, in modo definitivo, ogni dubbio.

Una fase di profondo cambiamento richiede un cambiamento altrettanto profondo nei modi e nei tempi della gestione dei propri investimenti. Troverete noi di Recce’d pronti e disponibili ad accompagnarvi lungo questo percorso di cambiamento.

“Inflation is always and everywhere a monetary phenomenon.” Milton Friedman made this remark in 1963. At that time, few macroeconomists agreed with him. Twenty years later a high proportion did. Twenty years after that, again most did not. Today, almost another two decades later, economists have to take money seriously again. If money is ignored, it will take revenge.

As Bridgewater’s Ray Dalio recently asked: “Where is the understanding of history and the common sense about the quantity of money and credit and the amount of inflation?”

The idea that there is a link between the money supply and inflation is very old. When people are holding more money than they desire, they will want to get rid of it. With any other asset, this would lower its price. But the nominal price of money is fixed: a dollar is a dollar. The adjustment comes via higher prices for everything else — or inflation. After an exceptional monetary expansion in 2020, we are surely seeing this. I noted the possibility in May that year.

Tim Congdon, a well-known monetarist, had argued this before me. According to the Center for Financial Stability, “Divisia M4” (an index that weights the components by their role in transactions) grew by 30 per cent in the year to July 2020, almost three times as fast as in any similar period since 1967. No such thing happened after the 2008 financial crisis. Many then worried over the expansion of the monetary base. But that did not matter because it did not affect broader aggregates.

A big lesson of history is that if economists think they understand how the macroeconomy works, they will be wrong.

1. In the 1930s, the conventional wisdom was that the economy was self-stabilising.

2. In the 1960s, it was that inflation expectations and money did not matter.

3. In the 1980s, it was that only money mattered. In the 2000s, it was that credit expansion would not destabilise the financial system.

4. In 2020, it was that money was irrelevant.

Again and again, we fall in love with naive stories. We want to believe the economy is a simple mechanism, but it is not. In 1975, the British economist Charles Goodhart argued that “any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes”. His insight was applied to the failure of monetarism to steer the economy.

But Friedman would not have been surprised. He had argued that money affected the economy with “a lag that is both long and variable”. But he did not believe in steering the economy. Those who did moved on to inflation targeting instead. Yet “Goodhart’s law” has a plausible corollary: once a measure ceases to be a target, it will again become meaningful.

As Mervyn King, former governor of the Bank of England, noted in an outstanding recent lecture: “Money has disappeared from modern models of inflation.” That is ridiculous. So, why has this happened? It is because technocrats have a foolish tendency to prefer being precisely wrong to being roughly right. So, where are we today? Optimists argue that the inflation we are seeing is just the result of temporary shortages caused by the pandemic. That is indeed part of the story, as a recent paper from the IMF explains. Yet the requirement, it asserts, is “to sustain a still-incomplete recovery and ensure that output catches up with its pre-pandemic trend — without allowing wages and prices to spiral upwards”. Indeed.

The difficulty is that, as Robin Brooks of the Institute of International Finance has shown, inflation has become general: in the US, the weight in the index of items with price rises of over 2 per cent in the year to January 2022 was just under 90 per cent.

To make things worse, Alex Domash and Lawrence Summers argue that measures showing a very tight US labour market, such as the vacancy and quit rates, are better indicators of inflationary pressures than non-employment. Worse, today’s labour market tightness would previously have been associated with sub-2 per cent unemployment. In sum, the inflationary genie is out of the bottle, especially in the US.

The danger is that this ignites a spiral, in which inflation expectations shift upwards, causing a flight from money and so further destabilising expectations. There is no point in insisting this will not happen, because it clearly might do so when inflation is so far above the target and previous forecasts. Credibility will have to be preserved, whatever it takes. Line chart of Inflation generalisation: weight (%) of items in basket with year-on-year inflation above 2% showing Year-on-year inflation is far from restricted to just a few items

What this means in policy now is difficult enough. But as King powerfully argues, central bankers also have to reconsider some of their recent doctrines. Just as the financial crisis showed that banking matters, so this inflationary upsurge shows that money matters. It also indicates that forward guidance assumes more knowledge than anybody possesses. Central banks may explain their reaction function, but cannot say what they are going to do, because they do not know what the economy will do.

Last but not least, average inflation targeting is surely stillborn. It never made sense to target future inflation in the light of past mistakes. Is the US Federal Reserve really going to lower inflation below 2 per cent in order to make up for a prolonged overshoot? What does make sense is to reassert its determination to hit its forward-looking target. But it is also possible we are going to see a degree of financial instability that will force deeper thinking on this, too.

We should always remember how little we know about the economy. Central banks must be humble and prudent. They cannot ignore valuable information just because they do not like what it shows. Yes, we cannot steer the economy via the money supply. But we cannot ignore it either. It carries warnings.

martin.wolf@ft.com