Chi sia Mohamed El Erian i nostri lettori lo sanno da un decennio, e altri lettori lo hanno scoperto più di recente, quando lo hanno ritrovato in prima pagina sul Corriere della Sera (nel 2019, come abbiamo raccontato qui nel Post.

Noi utilizzeremo alcuni brani di una sua intervista della scorsa settimana per offrire ai lettori del Blog una anticipazione dei temi che ritroveremo nel 2020 come determinanti per la performance dei nostri portafogli.

In questo terzo Post, utilizziamo un brano della intervista a El Erian per spiegare la ragione per la quale, nel 2020, non ci sarà alcun intervento delle Banche Centrali a “salvare” i mercati finanziari dal loro naturale percorso.

In the aftermath of the financial crisis, you introduced the term «New Normal». More than a decade later, this concept of a new economic reality, defined by slow growth and super low interest rates is still widely accepted. Are we ever going to escape the “New Normal”?
I remember exactly where I was at that time. It was in January 2009 and I was at a business meeting. People said: “This is not normal; this is not normal”. So I thought in my mind: “Yes, this is not normal, so it’s a new normal”. The idea was to warn against a cyclical mindset. People in the industrial world are used to live in what’s called a cyclical space. But this is not a business cycle.

What is really going on?
What’s going on in the advanced world is structural. It’s about productivity and growth potential. If you run complex liberal democracies at low growth for a long time, things start to break. So as good as the «New Normal» was for the last ten years, I don’t think it will expand the next ten years. We’re going to see a tip, and in Europe we’re getting much closer to it: If Europe hits stall speed in 2020, which is a growth rate of below 1%, the chances of a recession are increasing. Yet, with better policies, Europe can also bounce back quite quickly. So Europe is really heading for this tipping point or T-junction. The same is true for China and the US. But Europe is most advanced in that process.

In which direction do you think Europe is going to go?
The good news is that there is now an awareness that we cannot rely on negative interest rates. People understand that, at some point, negative interest rates become counterproductive: Savers save more rather than less because they’re not getting paid on their savings. You encourage too much risk taking in the financial world. You depress productivity because you allow for zombie companies to continue. And, you encourage inequality of wealth. So there is an awareness that we can no longer rely simply on the ECB. Also, most European economists agree on what’s needed. But it’s all an issue of implementation. What many of my European friends are most afraid of is that we don’t get implementation until things get a lot worse, until Europe actually goes into a deep recession.

Yet, investors are celebrating easy monetary policy once again. In the US, the Federal Reserve has cut interest rates three times this year and is injecting a ton of liquidity into the financial system.
It’s amazing: Today a year ago, the Fed raised interest rates once more and indicated continuing raising them in 2019. It also indicated that quantitative tightening was on autopilot. Now, they’ve lowered interest rates three times this year, and they started QE again, whether they call it QE or not. Interestingly, it’s not the economy that caused this turn. What changed was this very dramatic market dislocation in the fourth quarter of 2018. I call it a dislocation and not a sell-off because what Central Banks worry about is the functioning of the financial system. And, behind the 20% drop in the S&P 500 a year ago was an indication that certain segments of the financial markets will become illiquid. So what the Fed’s U-turn shows you is that the system has become addicted to continuous liquidity injection.

What does this mean for monetary policy going forward?
Central Banks increasingly are in a lose-lose-lose situation: They cannot step back and normalize policy, because the system is too addicted to liquidity. And, if they try to step back, they risk market dislocation. That’s the first loss. On the other hand, by doing more, they risk being counterproductive. So even though they're forced to do more, they’re really uncomfortable about it. That’s the second loss. And finally, where they are now, they’re subject to attack. So they lose by going back, they lose by going forward and they lose by staying in an uncomfortable position. That’s why this hand-off to fiscal policy and structural reforms is so important.

What is the Fed going to do in this kind of pickle?
I don’t think we’re going to see a hike in 2020. The most likely outcome is that the Fed stays on hold for the whole year. If there is a change, it will be lower interest rates.

Chi sia Mohamed El Erian i nostri lettori lo sanno da un decennio, e altri lettori lo hanno scoperto più di recente, quando lo hanno ritrovato in prima pagina sul Corriere della Sera (nel 2019, come abbiamo raccontato qui nel Post.

Noi utilizzeremo alcuni brani di una sua intervista della scorsa settimana per offrire ai lettori del Blog una anticipazione dei temi che ritroveremo nel 2020 come determinanti per la performance dei nostri portafogli.

In questo quarto Post, ci facciamo aiutare da El Erian per illustrare (ancora una volta) la crisi che è tutt’ora in atto sul mercato della liquidità negli Stati Uniti, e le sue implicazioni (che sono state solo rinviate nel tempo, ma che NON sono evitabili) per tutti i mercati finanziari, dalle azioni alle obbligazioni ai cambi.

Speaking of liquidity issues: How concerning are the ongoing strains in the repo market?
The repo market is one of the most sophisticated markets as it deals with wholesale funding. That’s why everybody assumed that this market was in good shape. But then, we had two surprises: First, to the surprise not only of the public but also of the New York Fed - which is totally focusing on that market - interest rates spiked to 10%. That was a massive dislocation. Second, it has taken a very long time to calm the repo market. Even today, the New York Fed continues to inject massive liquidity to keep the repo rate down. So we’re learning that after so many years of very big liquidity injections by Central Banks, the system has over-promised liquidity: You get these episodes of illiquidity in the midst of liquidity.

The turmoil in the short-term funding markets raises bad memories about the darkest hours of the financial crisis. Could we encounter a similar melt-down of the money markets today?
Today, we have the tools to deal with dislocations in the US banking system. I don’t worry about that. But for two reasons I worry about the promise of liquidity to non-banks. The first reason is a structural change: Before 2008, the intermediaries were big and the end-users were small. So when the end-users collectively changed their mind, they could get balance sheet from the intermediaries. Now, because of a combination of regulation and market pressure, the intermediaries have shrunk, and the end-users have gotten bigger. So whenever there is a collective change of view, like in the fourth quarter of 2018, the intermediaries cannot absorb that through their balance sheet, and we get market dislocations.

And what’s the second reason?
In certain segments, particularly in the ETF market, there’s over-promised liquidity. An ETF is an implicit promise of instantaneous liquidity at reasonable bid/offer prices. That’s why it makes sense to offer ETFs on liquid markets. But it doesn’t make sense to offer ETFs on segments of the high yield market or on segments of emerging markets. They may be liquid today, but their underlying liquidity is fragile.

Chi sia Mohamed El Erian i nostri lettori lo sanno da un decennio, e altri lettori lo hanno scoperto più di recente, quando lo hanno ritrovato in prima pagina sul Corriere della Sera (nel 2019, come abbiamo raccontato qui nel Post.

Noi utilizzeremo alcuni brani di una sua intervista della scorsa settimana per offrire ai lettori del Blog una anticipazione dei temi che ritroveremo nel 2020 come determinanti per la performance dei nostri portafogli.

In questo quinto ed ultimo Post, arriviamo alle conclusioni. La chiave di lettura del 2019 è, a nostro parere e non soltanto a nostro parere, che si è trattato di un anno anomalo: anzi, di un anno abnorme. Nel 2019 abbiamo visto, come viene spiegato in modo efficace da El Erian, tre cose che sono impossibili da vedere allo stesso momento. Per questo, è giustificato affermare che i mercati nel 2019 hanno “inseguito un sogno”.

E questa avviamente non è soltanto una considerazione sul passato: è al tempo stesso una fortissima indicazione operativa per il futuro, e per i nostri portafogli in titoli.

Nevertheless, 2019 turned out to be one of the best years ever for investing. What kind of performance can we expect in 2020?
I’ve been calling it «livin' the dream» because we’ve had three things that are almost impossible to get together: One, you’ve had almost a 30% increase in US stock market indices. Two, on the whole, volatility was very low. And three, you’ve also made money on your risk-free assets. So the correlations have broken down, everything has worked for investors. The reason is liquidity: The relaxation of monetary policy by the Federal Reserve and the ECB boosts all asset prices. They’re buying the risk-free assets which pushes investors to buy the risky assets, so everything goes up.

How long can this «dream» go on?
Going forward three or four years, this cannot continue. So this is a very good time to go up in quality: favor strong balance sheets and reduce exposure to illiquid asset classes that could get disrupted, like certain segments of the high yield market and emerging markets corporates. For example, two years ago, Argentina issued a hundred-year bond at 7,9% which was massively oversubscribed. Then, suddenly Argentina went into troubles and that bond came down quickly to trading at 30 Cents on the Dollar because no one is making the market as the price goes down. That’s because there are two types of investors in these assets: The dedicated investor who understands how these markets function, and «tourist investors» who come in because they’re attracted by the higher yield. The latter don’t understand the higher yield very well but it’s much better than what they get elsewhere. So when a problem occurs, they want to get out at any cost - and that’s why you get this massive gap in prices.

What should a prudent investor do in this kind of market environment?
If you’re like me and expect volatility, you want to have some cash to pick up good opportunities at cheap prices. So as you get rallies, you sell companies with weaker fundamentals and you do two things: You allocate some of that money to attractive opportunities and you build up your cash. People forget that cash performs multiple functions in a portfolio: First, it performs as a risk mitigation. Especially when yields are so low, it’s important to have cash as a risk mitigator. Second, cash gives you agility. The fourth quarter of 2018 was the perfect example. You could have picked up the big technology firms like Microsoft at very cheap prices. These firms are attractive when they sell-off big because they have very solid balance sheets, they are massive cash generators and they’re in a growing business.

Where else would you watch out for opportunities?
Markets overshoot on the way up and on the way down. That means sell-offs offer opportunities to take advantage of distressed situations trading at bargain prices. For instance, as much as Argentina is distressed, when that Argentine bond was trading at 30 Cents, the market had overshot. Here’s another example: There are Turkish multinational companies with assets outside of Turkey that are very reliant on Turkish banks. Since Turkish banks are lending less, you can lend to these companies with collateral outside of Turkey at double digit interest rates. And then, there is the issue of getting closer to the real economy: We are seeing more and more people co-investing in direct lending vehicles where you can find value as well. So it’s all about slowly re-orienting your portfolio because very short-term I’m constructive.

Chi sia Stephen Roach lo potete leggere sia alla fine di questo Post, sia sul Web. Noi vi proponiamo di leggere un articolo che Stephen Roach ha pubblicato la settimana scorsa, e che vi fornisce una interpretazione qualificata dei fatti del 2019, del comportamento dei mercati finanziari, e quindi anche di ciò che vedrete nel 2020. In poche righe, troverete tutte le cose più importanti da tenere a mente, quando decidete come investire i vostri soldi. La lingua resta l’inglese, anche in questo caso per restituire a chi legge il senso originale dell’Autore: ci scusiamo per il disagio.

By Stephen S Roach
December 27, 2019 8:01 am GMT

Predicting the next crisis — financial or economic — is a fool’s game.

Yes, every crisis has its hero who correctly warned of what was about to come. And, by definition, the hero was ignored (hence the crisis).

But the record of modern forecasting contains a note of caution: those who correctly predict a crisis rarely get it right again.

The best that economists can do is to assess vulnerability. Looking at imbalances in the real economy or financial markets gives a sense of the potential consequences of a major shock. It doesn't take much to spark corrections in vulnerable economies and markets. But a garden-variety correction is far different from a crisis. The severity of the shock and the degree of vulnerability matter: big shocks to highly vulnerable systems are a recipe for crisis.

In this vein, the source of vulnerability that I worry about the most is the overextended state of central-bank balance sheets. My concern stems from three reasons.

First, central banks’ balance sheets are undeniably stretched. Assets of major central banks — the US Federal Reserve, the European Central Bank, and the Bank of Japan — collectively stood at $14.5tn in November 2019, which is down only slightly from the peak of around $15tn in early 2018 and more than 3.5 times the pre-crisis level of $4tn. A similar conclusion comes from scaling assets by the size of their respective economies: Japan leads the way at 102% of nominal GDP, followed by the ECB at 39%, and the Fed at a mere 17%.

Second, central banks’ balance sheet expansion is essentially a failed policy experiment. Yes, it was successful in putting a floor under collapsing markets over a decade ago, in the depths of the crisis in late 2008 and early 2009. But it failed to achieve traction in sparking vigorous economic recovery.

Central banks believed that what worked during the crisis would work equally well during the recovery. That didn’t happen. The combined nominal GDP of the US, eurozone, and Japan increased by $5.3tn from 2008 to 2018, or only about half their central banks’ combined balance-sheet expansion of $10tn in over the same period. The remaining $4.7tn is the functional equivalent of a massive liquidity injection that has been propping up asset markets over most of the post-crisis era.

Third, steeped in denial, central banks are once again upping the ante on balance-sheet expansion as a means to stimulate flagging economic recoveries. The Fed’s late 2018 pivot led the way, first reversing the planned normalisation of its benchmark policy rate and then allowing its balance sheet to grow again (allegedly for reserve management purposes) following steady reductions from mid-2017 through August 2019. Asset purchases remain at elevated levels for the BOJ as a critical element of the “Abenomics” reflation campaign. And the recently installed ECB president, Christine Lagarde, the world’s newest central banker, was quick to go on the record stressing that European monetary authorities will “turn (over) each and every stone” — which presumably includes the balance sheet.

So why is all this problematic? After all, in a low-inflation era, inflation-targeting central banks seemingly have nothing to fear about continuing to err on the side of extraordinary monetary accommodation, whether conventional (near zero-bound benchmark policy rates) or unconventional (balance-sheet expansion).

The problem lies, in part, with the price-stability mandate itself — a long-standing, but now inappropriate, anchor for monetary policy. The mandate is woefully out of sync with chronically below-target inflation and growing risks to financial stability.

The potential instability of the US equity market is a case in point. According to the widely-cited metrics of Nobel laureate economist Robert Shiller, equity prices relative to cyclically adjusted long-term earnings currently are 53% above their post-1950 average and 21% above the post-crisis average since March 2009. Barring a major reacceleration of economic and earnings growth or a new round of Fed balance-sheet expansion, further sharp increases in US equity markets are unlikely. Conversely, another idiosyncratic shock — or a surprising reacceleration of inflation and a related hike in interest rates — would raise the distinct possibility of a sharp correction in an overvalued US equity market.

The problem also lies in weak real economies that are far too close to their stall speed. The International Monetary Fund recently lowered its estimate for world GDP growth in 2019 to 3% — midway between the 40-year trend of 3.5% and the 2.5% threshold commonly associated with global recessions. As the year comes to a close, real GDP growth in the US is tracking below 2%, and the 2020 growth forecasts for the eurozone and Japan are less than 1%. In other words, the major developed economies are not only flirting with overvalued financial markets and still relying on a failed monetary-policy strategy, but they are also lacking a growth cushion just when they may need it most.

In such a vulnerable world, it would not take much to spark the crisis of 2020. Notwithstanding the risks of playing the fool’s game, three “Ps” are at the top of my list of concerns: protectionism, populism, and political dysfunction. An enduring tilt toward protectionism is particularly troubling, especially in the aftermath of a vacuous “phase one” trade accord between the US and China. Prime Minister Narendra Modi’s “Hindu nation” crusade in India could well be the most disturbing development in a global swing toward populism. And the great American impeachment saga takes Washington’s political dysfunction further into uncharted territory.

Quite possibly, the spark will be something else — or maybe there won’t be any shock at all. But the diagnosis of vulnerability needs to be taken seriously, especially because it can be validated from three perspectives — real economies, financial asset prices, and misguided monetary policy.

Throw a shock into that mix and the crisis of 2020 will quickly be at hand.

Stephen S. Roach, a faculty member at Yale University and former Chairman of Morgan Stanley Asia, is the author of Unbalanced: The Codependency of America and China

La domanda più frequente, che si rincorre tra investitori ed operatori di mercato, è questa: “quanto potrà durare?”.

La riconciliazione tra la realtà dei fatti e il miraggio, o meglio la squeza di miraggi, che si inseguono sui mercati finanziari è inevitabile. Nessuno oggi lo discute: nessuno che abbia ancora un residuo di buon senso.

Eppure, la distanza tra la realtà dei fatti e i numeri sui mercati finanziari, nel 2019, è cresciuta ancora, ed in molti casi in una misura drammatica, che ha emozionato molti e preoccupato molti.

Quanto può durare, allora? Noi, in Recce’d, non abbiamo una risposta: noi come voi stiamo assistendo a questo “esperimento sociale” che non ha alcun precedente nella storia dei mercati e nella storia delle economie.

Non esistono precedenti di una specie di “pianificazione centralizzata” dei rialzi di mercato, alla quale collaborano di fatto le banche centrali da un lato e i Governi in carica dall’altro. Una serie di manovre di tipo politico che hanno in comune l’obbiettivo di fare salire gli indici dei mercati finanziari, tutti e tutti insieme.

Che si tratti di una mossa disperata, o meglio di un inseime di mosse della disperazione, per tenere insieme un edificio che traballa, questo lo abbiamo già visto, discusso, documentato, e dimostrato con i fatti.

Che questo “esperimento sociale” sia destinato a finire male è certo. Ed è certo perché ormai un finale caotico non è più evitabile, visto il livello di stress che si esprime proprio nei prolungati rialzi degli indici, rialzi a cui nessuno sa più dare un senso, una proporzione, una direzione.

Che sia destinato a finire in tempi brevi, noi in Recce’d lo pensiamo, e riteniamo la cosa più che probabile: ma su questo, ovviamente, non siamo nella condizione di offrire garanzie.

Invitiamo però i nostri lettori a riflettere sul passato: ed oggi, in particolare, proponiamo ai lettori di utilizzare un po’ del loro tempo per investigare la figura e la vicenda di Irving Fisher.

Scienziato dell’economia, e uomo le cui capacità furono riconosciute sia della comunità degli economisti, sia dal mondo della politica e del pubblico in generale, ad Irving Fischer si deve una delle più efficaci teorie delle bolle finanziarie. Ovvero, una delle teorie più efficaci per comprendere come e quando finirà la fase di mercato oggi in corso. La sua teoria è stata chiamata “debt-deflation” e poco più sotto ve ne offriamo una sintesi estrema, lasciando poi ai nostri lettori di approfondire come meglio credono (le fonti sono moltissime).

Purtroppo per Irving Fisher, la sua intera vicenda umana e professionale è però legata, per il grande pubblico, ad un altro fatto.

Tutte le persone, in tutto il Mondo, ricordano Irving Fisher per avere pronunciato la frase “a permanetly high plateau” ("reached what looks like a permanently high plateau.” ) . La frase esprimeva questo concetto: la Borsa di New York si è ormai assestata, in modo permanente, ad un livello più alto, da cui non scenderà più (perché non si torna mai indietro).

Questa frase celeberriama di Fisher a noi ne ricorda moltissime altre, che abbiamo ascoltato di recente, e che dicono che il Mondo ormai è cambiato, che i mercati finanziari ormai sono cambiati, che le valutazioni ormai non contano, che le Banche Centrali dispongono di un potere sovra-umano a cui noi umani possiamo soltanto soggiacere, che ormai siamo entrati in una fase del tutto nuova della storia economica.

Perché si diffonde un atteggiamento di questi tipo, tra il fatalista e il catastrofista?

Ci aiuterà a comprenderlo la vicenda professionale ed umana proprio di Iriving Fisher: il quale pronunciò quella frase che abbiamo riportato in alto 9 gionri prima del crollo del mercato azionario di New York nel 1929, crollo che prese avvio con tre sedute nelle quali i ribassi furono rispettivamente del 10% (il venerdì), del 12% (il lunedì), e poi ancora del 10% (il martedì).

La Borsa di New York rivedrà i livelli del 1929 soltanto dopo 30 e più anni.

A posteriori, Fisher si sbagliava: ma allora, in quel preciso momento?

Si trattava certamente di una persona lucida, di una persona informata, e di una persona istruita e con una grande reputazione in campo economico e finanziario.

Anche i nostri lettori sono lucidi, informati ed istruiti.

Ma è chiaro che la pressione alla lunga esaspera, l’attesa tende i nervi, logora, riduce la lucidità. Così come è chiaro che i rialzi di mercato prolungati nel tempo obbligano a farsi delle domande ed a mettere in dubbio le proprie convinzioni, e a volte per chi non dispone di sufficiente pazienza e di sufficiente tenuta nervosa impongono di dire qualcosa, o peggio di fare qualcosa, per “non stare soltanto lì a guardare”.

Nel 1929, la crisi portò via dal mercato azionario di New York lo 80% del valore dell’indice: oggi, secondo alcuni, questo risulterebbe impossibile, perché sono stati introdotti nuovi “meccanismi automatici di stabilizzazione”.

Noi vogliamo ricordare a tutti i lettori che questi meccanismi di stabilizzazione sono stati sviluppati e testati sulla base dei problemi del passato. E si può essere certi che se comparissero problemi seri sui mercati finanziari, questi NON avrebbero la medesima forma che assunsero in passato. Voi lettori, nel 2008, neppure sapevate con certezza dell’esistenza dei “subprime loans”, giusto?

Chiudiamo il Post ricollegandoci al punto di cui abbiamo fatto cenno più in alto: la teoria della debt-deflation di Irving Fisher, che potrebbe aiutarvi a riflettere su dove ci troviamo in questo momento, e dove ci troveremo fra non molto tempo. Vi invitiamo ad approfondire , utilizzando anche altre fonti.

Following the stock market crash of 1929, and in light of the ensuing Great Depression, Fisher developed a theory of economic crises called debt-deflation, which attributed the crises to the bursting of a credit bubble. Initially, during the upswing over-confident economic agents are lured by the prospect of high profits to increase their debt in order to leverage their gains. According to Fisher, once the credit bubble bursts, this unleashes a series of effects that have serious negative impact on the real economy:

1. Debt liquidation and distress selling.

2. Contraction of the money supply as bank loans are paid off.

3. A fall in the level of asset prices.

4. A still greater fall in the net worth of businesses, precipitating bankruptcies.

5. A fall in profits.

6. A reduction in output, in trade and in employment.

7. Pessimism and loss of confidence.

8. Hoarding of money.

9. A fall in nominal interest rates and a rise in deflation-adjusted interest rates.

Crucially, as debtors try to liquidate or pay off their nominal debt, the fall of prices caused by this defeats the very attempt to reduce the real burden of debt. Thus, while repayment reduces the amount of money owed, this does not happen fast enough since the real value of the dollar now rises ('swelling of the dollar').