Come noi, anche molti nostri lettori saranno stanchi e stufi, di leggere e sentire parlare di “inflazione” e di “recessione”.

Sei mesi fa, se si dava ascolto alla Federal Reserve e Goldman Sachs, oppure alla BCE ed UBS, questi due temi (inflazione e recessione) erano “inesistenti” e quindi “irrilevanti”.

Nel corso del primo semestre 2022, sono diventati gli “unici” temi di mercato. Nelle ultime settimane, la “recessione” è il solo tema di mercato.

Per conseguenza, tutte le banche di investimento internazionali, tutte le Reti di promotori finanziari italiane, e anche tutti i media, si sono buttati a capofitto: scopertisi in ritardo, si sono lanciati all’inseguimento.

Oggi un solo titolo si legge su tutti i media di settore, ed è questo: “Come si investe quando arriva la recessione?”.

A noi il tema NON interessa, per nulla. Sul piano della operatività di portafoglio questo è stato un tema rilevante, ma dodici mesi fa e sei mesi fa, quando i pochi che allora comprendevano ciò che stava succedendo anticiparono la “recessione”.

Noi di Recce’d la anticipammo proprio a voi, i lettori di questo Blog, ed anche attraverso i nostri portafogli modello.

Oggi, non ci interessa, sul piano operativo, scrivere di “recessione” o di “inflazione”: sono temi interessanti, certo, ma sul piano culturale e sociale, non sul piano operativo, perché sono già nei prezzi di mercato e quindi temi “passati”.

Noi di Recce’d, già un mese fa, proprio qui nel Blog, anticipammo per i lettori tutti che i temi di investimento sono destinati a cambiare, nel secondo semestre 2022.

Noi dicemmo, in più occasioni, in modo chiarissimo: ci saranno altri cinque NUOVI temi di mercato, dominanti nel secondo semestre.

In questo Longform’d, Recce’d vi anticipa alcuni (non tutti) di questi NUOVI temi di mercato, che ritroverete poi tra qualche mese in prima pagina sul Sole 24 Ore e sul Corriere della Sera.

Il primo di questi temi oggi noi ve lo presentiamo attraverso con un selezionato contributo firmato da Daniel Lacalle, che potete leggere qui di seguito.

Most market participants have been surprised by the last six months. The total return of the US Treasury Index was the worst since 1788 according to Deutsche Bank.

Stocks closed June with one of the largest corrections since 2008. Bonds and equities are falling in unison, driven by rate hikes and normalization of monetary policy.

However, there is no such real normalization.

The balance sheet of the main central banks has barely moved and remains at all-time highs according to Bloomberg. The ECB continues to ignore the highest inflation rate in the eurozone since the early 90s by keeping negative rates. The Federal Reserve rate hikes have been more aggressive, but it is still injecting billions of dollars in the reverse repo market and monetary aggregates remain excessive.

In the United States, money supply growth (M2) is still much higher than in the quantitative easing years. M2 money supply has risen to 21.8 trillion dollars and yearly change shows a rise of 1.3 trillion dollars, which is more than double the annual figure of the expansion phase of 2008-2011. Money supply (M2) annual growth in the United States was 6.5% in May, 6.6% in the eurozone. Global monetary growth in May was 9.9%, all figures according to Yardeni Research. In the eurozone money supply growth is higher than in the middle of the so-called “Draghi bazooka”, the famous “whatever it takes”.

Central banks have gone from “whatever it takes” to “no matter what”.

We already explained in a previous article that commodities do not cause inflation, money printing does, and the monetary aspect of inflation is not being addressed properly. One or two prices may rise due to an external crisis, but the rest would not rise in unison given the same quantity of currency. Between 2012 and 2014 we saw energy commodity prices soar, yet inflation measured as CPI was low because the supply of currency was in line with demand. We did see enormous inflation in asset prices, though, and policy makers did not pay attention to the impact on house prices and markets of enormous liquidity injections. When newly created currency stopped going to risky assets and was targeted at government current spending, inflation shot up.

Central banks seem to fear markets. However, it is better to create a correction in bonds, equities, and risky assets after years of all-time highs than to lead the world to a crisis created by the destruction of purchasing power of salaries and deposits.

Policy makers should be very concerned about the so-called “prudent” normalization because the expansion was far from prudent. The pace at which they bloated their balance sheets and cut rates is what they should have been worried about, not the normalization.

Consumer confidence is plummeting around the world, real wages are negative, and families are consuming the little savings they had just to make ends meet. At the same time, businesses are struggling with weaker margins as input prices soar.

The worst thing that governments and monetary authorities could do is to let the economy slip into a crisis where the productive sector, families, and businesses, collapse just because they did not want to cut deficit spending and truly normalize monetary policy. By then, the problem will not be inflation, but deflation coming from the asphyxiation of the private sector.

Once consumers and businesses fall, tax revenues will also plummet, taking government debt to new highs. Even Keynesians should be worried about letting inflation run wild because the result would be that governments face an even worse fiscal crisis when the private sector slumps.

Inflation can be addressed by properly reducing central bank balance sheets, raising rates, and cutting deficit spending. If policy makers send the private sector to a crisis due to inaction, the crisis will be far worse than 2008. It is still time. End the perverse incentives of excessive monetary action. It may still create another leg down in markets, but they will eventually recover. The destruction of businesses and families’ disposable income is far more challenging to restore.

Che cosa potete trovare, di interessantissimo, nell’articolo che avete appena letto? L’articolo prende spunto dalla discesa degli indici di mercato, la associa con le recenti scelte e dichiarazioni delle Banche Centrali (tema da noi già ampiamente analizzato) ma arriva alla fine al tema delle scelte dei politici (non quelli delle Banche centrali: quelli che stanno al Governo ed al Parlamento).

Recce’d ha già messo in evidenza il fatto che oggi le Banche Centrali sono (meglio: si sono messe da sole) fuori dai giochi, come già in passato era successo (seconda metà del 2008). I politici sono e saranno costretti a fare scelte, alcune delle quali drastiche, e molte delle quali impopolari.

E quale è dunque il NUOVO tema di mercato che noi avevamo anticipato più in alto? Si tratta di quella che nell’articolo è chiamata la “crisi fiscale”: nessuno sui mercati, almeno fino ad oggi, si è chiesto che cosa succederà alle entrate fiscali, se i fatti che si sono messi in moto nel primo semestre 2022 ci porteranno verso la tanto anticipata “recessione”.

Nessuno, per ora, sui mercati ha operato sulla base di queste considerazioni. Nei prezzi sui mercati finanziari, a tutto oggi, la “crisi fiscale” non esiste. Così come non si vede, ancora, il tema del “credito”.

Queste considerazioni ci portano ad un secondo contributo, che prendiamo a prestito da Rabobank: nel brano che segue, leggete delle misure varate dal Governo tedesco per un “controllo dei prezzi” nel comparto del gas, e del salvataggio (con denaro pubblico) della Società tedesca che si chiama Uniper (settore gas). Due interventi pubblici che il testo che per voi abbiamo selezionato prede ad esempio, allo scopo di spiegare che cosa è la Santissima Trinità.

Nulla a che vedere con la religione, in questo caso: l’espressione “Santissima Trinità” fu scelta da due economisti (Mundell e Fleming) sessanta anni fa, per attribuire una etichetta facile da ricordare ad un loro ragionamento a proposito della politica economica.

Mundell e Fleming spiegarono le ragioni (solide) per ritenere che per un singolo Stato è e sarà sempre impossibile avere:

una politica monetaria indipendente
un tasso di cambio stabile
la libertà nei movimenti di capitale

Ed eccoci arrivati al secondo “NUOVO tema di mercato” a cui vogliamo accennare in questo nostro Longform’d: vogliamo anticiparvi che, nel secondo semestre del 2022, sui mercati finanziari tutti ci ritroveremo ad occuparci molto di più di cambi tra le maggiori valute.

Leggendo con attenzione l’articolo, facilmente arriverete a comprendere le (svariate) ragioni per le quali questa evoluzione, e questo NUOVO tema di mercato, toccheranno in particolare l’euro, e quindi noi europei.

After last week’s recession fear-driven bounce-back in bonds (especially those at the shorter maturity section of the curve), markets took a breather on Monday as the US were closed for Independence Day. The European 2-year swap rate (which declined by a whopping 80bp in the last two weeks of June), recovered by more than 10bp yesterday. Arguably that was also driven by hawkish comments from ECB officials, such as Bank of Slovenia Governor Vasle, who warned that there will “likely be more rate hikes […] after September”. The RBA’s second consecutive 50bp hike this morning – albeit in line with the market’s expectations – served as another reminder that short-term rates are on a (steep) upward slope, globally.

Meanwhile, the US and China are in talks over a roll-back of tariffs imposed by the former Trump administration. It is our understanding that Treasury Secretary Yellen is a proponent of such a reversal, but that there is no unity on this issue in the Biden team. US Trade Representative Katherine Tai, for example, sees the tariffs as useful leverage in broader discussions with China (although sceptics will argue that the tariffs have done little to rebalance the trade relation between the two countries). The downward impact this would have on inflation is likely to be quite modest according to many analysts. Still, if such a decision were to coincide with the start of a downward trajectory in inflation (for entirely different reasons, such as ‘peak’ commodity prices), President Biden –who has also expressed great concern over cost of living issues for US households– may spin it as a vote-winner as the November mid-term elections are drawing closer.

(…)

Germany has already switched to phase 2 of its national gas emergency plan, just one step shy from taking complete control over the allocation of natural gas. Its previously mothballed coal-powered electricity plants are being fired up again and the government is still in talks with Uniper, its biggest gas importer, on what support measures it will provide. According to Germany’s Spiegel magazine, the government is working on legal basis to support gas supply companies with measures that could include the acquisition of shares and/or grant loans or guarantees. The Lufthansa bailout is seen as a blueprint for such measures. Bloomberg reports this morning that the potential bailout package could be as much as EUR 9bn.

But Chancellor Scholz acknowledged yesterday that the country is facing a “historic challenge” and that the rising costs of living could have “explosive” effects on German society, as it also drives a further wedge between the rich and the poor. Arguably, the Chancellor himself is facing one of those Unholy (or Impossible) Trinities: he cannot prevent social unrest, if he wants to have lower inflation and wants to prevent a recession at the same time. One could argue that simultaneously achieving the latter two objectives are already a daunting task in itself, let alone doing so without causing tensions between those in work and those enjoying their pension, or between the providers of capital and the providers of labour.

So he’d better leave the prevention of inflation in the safe hands of the ECB, right? Oh, hang on, that other institution is actually dealing with an Unholy (or Impossible) Trinity itself. In fact, we would argue, one that is of its own making.

Before you start googling, the “Impossible trinity” concept dates back to the research by international economists Robert Mundell and John Fleming. The central tenet of their reasoning is that it is impossible to have all three of the following at the same time:

i) independent monetary policy (i.e. full control of your money supply),
ii) a fixed/stable exchange rate and
iii) the free movement of capital.

The prime example often used to explain the trinity is the situation where the central bank choses its own monetary policy amidst free capital flows. Under that regime – which basically is the regime under which many developed-markets central banks are currently operating – the central bank cannot control the exchange rate. For if it wants to fix the exchange rate it would have to use its FX reserves to steer the exchange rate. Since these reserves are limited it cannot support its currency indefinitely should it want to maintain an interest rate that is below the ‘global’ interest rate. Should it want to maintain an interest rate that is above the global level, it would likely see considerable capital inflows and the only way to stabilize the exchange rate is to purchase the influx of foreign currency by printing more of its own money, thus raising the money supply and stimulating growth and inflation.

But, we hear you thinking: things are absolutely fine for the ECB, right? Because the “exchange rate is not a policy target”. So no problem there. However, we are actually thinking about yet another Impossible Trinity that is currently playing havoc with the ECB. Over the weekend, the FT reported that the ECB is in discussion over whether and how it could prevent banks from making “multibillion euro” windfall profits from the cheap loans that the ECB has provided them during the pandemic. The basic idea here is that many banks have met their TLTRO targets and therefore borrow at the average deposit facility rate over the entire life of the loan. Since this average rises much more slowly than the actual deposit facility rate when the ECB hikes rates later this month, this effectively offers banks a free lunch.

We asked ourselves: this is not a new issue and the ECB could have seen this coming when it devised the policy. So why and why now? Well, one explanation could be that the ECB has been surprised by the relative low amount of TLTRO repayments by banks so far. But a more interesting explanation – in this regard – is that, in the process of designing its Anti Fragmentation Tool, the ECB may suddenly be realising that it has to give up control of the size of its balance sheet (or better: the monetary base), if it wants to maintain control over interest rates and spreads and prevent fragmentation at the same time.

A thought experiment helps explain the issue. Let’s assume concerns over Italian spreads force the ECB to buy more Italian bonds. And let’s assume that in order to fully sterilize the impact on the monetary base, the ECB decides to sterilize by mopping up liquidity through ‘weekly deposits’ (at a slight premium over de deposit facility rate). This, however, implies that the monetary base would effectively continue to expand, posing long-term risks to inflation. Alternatively, should the ECB decide to raise its reserve requirements by the same amount as it has pumped into Italian bonds, the increase in those requirements would likely pose a problem for those banks already low on excess reserves and who would not see a commensurate increase in their reserves.

As a consequence, the fragmentation issue may not be solved. And if the central bank were to issue securities with a long maturity, this would probably raise long-term interest rates (as they would compete with other core bonds). So while that may contain spreads, it would not be able to contain long-term yield levels.

So the basic conclusion here is that, with so many goals to achieve, the ECB risks becoming all tied up in its own instruments. Failure is almost guaranteed. It just has to choose where it accepts such failure.

Completiamo il nostro Longform’d con un terzo contributo esterno: l’autore questa volta è Mohamed El Erian, che tutti i nostri lettori conoscono bene.

In questo articolo, pubblicato dal Financial Times, El Erian prende come spunto le ampie perdite inflitte a tutti gli investitori nel primo semestre del 2022, e prova a vedere queste perdite in una chiave positiva: dice El Erian che per tutti noi è benefico il fatto che i prezzi degli asset finanziari si siano avvicinati di nuovo alla realtà delle economie e più in generale alla realtà dei fatti, dopo un lungo periodo nel quale “sono stati gonfiati artificialmente da enormi iniezioni di liquidità da parte delle Banche centrali”.

Ci sia consentito un inciso: noi di Recce’d scrivevamo queste medesime parole già due anni fa, e poi in numerose occasioni, da allora ad oggi.

Torniamo ad El Erian: nel suo articolo, scrive che “se il punto di arrivo adesso è quanto meno più sostenibile, la strada per arrivarci è sconnessa e piena di buche e di rischi”. Tra questi rischi, El Erian scrive di “fasi di stress nel funzionamento dei mercati finanziari”.

Noi di Recce’d portiamo alla attenzione dei lettori in questo inizio di luglio 2022 questo tema, in quanto uno dei NUOVI temi di mercato dei quali leggerete, poi, tra qualche mese, sulla prima pagina del vostro quotidiano preferito.

I nostri portafogli modello, già oggi, tengono conto di questi fatti di domani. Di questi NUOVI temi di mercato.

To say that the first half of the year was painful for investors would be a big understatement. They suffered large losses on their holdings of stocks, corporate bonds, emerging markets, crypto and other assets; and, for most of the last six months, they received no protection from government bonds whose traditional risk mitigation attributes gave way to big losses, too.

Indeed, other than oil and some other commodities, it was a dismal picture all around in public markets. It is only a matter of time until valuations in private equity follow suit.

This is an environment in which it is hard to argue for silver linings, especially when so many analysts are warning that additional losses may be ahead in both public and private markets.

Yet three are already evident.

First, genuine and more sustainable value is being restored after a period in which asset prices were lifted artificially and distorted by huge and predictable injections of liquidity by central banks. Already some prominent individual stocks are in oversold territory, having been technically contaminated by what has been a generalized selloff as liquidity has been receding.

Second, after tracking equities lower and, in the process, experiencing historic losses, government bonds are resuming their role of risk mitigators in diversified investment portfolios. This is better news for investors who, for most of the first half of this year, felt that there was nowhere to hide.

One reason for the return of the traditional inverse correlation between the price of government bonds (the “risk-free asset”) and that of stocks (“risky”) is that the three main risk factors in play have evolved sequentially — the third silver lining. Had they operated simultaneously, the damage to markets and the economy would have been significantly worse.

The market selloff started with surging “interest rate risk” because of inflation and the sluggish policy reaction function of the Federal Reserve. This hit both stocks and bonds hard. It was joined in the last few weeks by higher “credit risk” as investors fretted that a late Fed scrambling to catch up with inflationary realities would push the economy into recession. The more these two risks persist, the greater the threat of unleashing the third, more damaging risk factor: stress to market functioning.

For long-term investors, it will prove beneficial over time that markets are exiting an artificial regime that was maintained for far too long by the Fed and that resulted in frothy valuations, relative price distortions, resource misallocations and investors losing sight of corporate and sovereign fundamentals. The promise now is one of a more sustainable destination. Unfortunately, it comes with an uncomfortably bumpy and unsettling journey.

Longform'd. I temi di mercato del secondo semestre 2022: vecchi, e nuovi