17 noviembre 2017

los mercados son bajistas cuando se entra en recesión

Esto es lo que no debemos olvidar nunca. Puede haber una corrección de las bolsas, sería saludable. Pero solo se convierte en tendencia bajista cuando la economía decrece. ¿Hay síntomas ahora de un decrecimiento económico que derive en recesión? Aquí lo intentan explicar, aunque suele haber un factor exógeno el que la produce y acelera… Y esos factores casi nunca se huelen.

Market melt-up and crash?

The challenges of a late cycle bull

I have been making the point that the American economy is in the late stages of an expansion. This presents some investment challenges as an inflection point may be near. As the chart below shows, while every equity downdraft has not signaled a recession, every recession has seen an equity bear.
The question is, “How far away are we from a recession?” I try to answer that question this week by focusing on three components of the economy using the leading indicators in my Recession Watch Monitor:
+The household sector;
+The corporate sector; and
+Monetary conditions.
Further, I analyze the nowcast of the economy and the market outlook from both macro and technical viewpoints. The market may be setting for a scenario where stock prices melt-up, followed by a market crash of unknown magnitude.

Signs of a late cycle expansion

The market was pleasantly surprised on Friday by the better than expected retail sales figure, and tamer than expected CPI release. As well, consumer sentiment surged to a new cycle high.
While Friday’s data represents good news in the short term, the combination of strong retail sales (red line) and the lack of wage growth (blue line) means that the household sector will eventually have trouble supporting consumer spending at the current pace.
There are a number of ways that the household sector can cope. More members of the household can find jobs. Employment statistics remain strong, though the pace of improvement is decelerating. While a deceleration in non-farm payroll employment is not a warning of recession, it does indicate that the economy is well past the mid-cycle phase of its expansion.
Another way the household sector can keep on spending is by cutting back its savings rate.
Finally, households can take on more debt as a last resort to maintain spending patterns. I call this the “keeping up with the Joneses” effect. As the chart below shows, household debt levels are rising again after deleveraging in the wake of the last financial crisis.
The stresses are already showing up in big ticket consumer durable purchases. Auto sales appear to have peaked for this cycle, though the latest spike is probably related to the replacement of hurricane damaged vehicles.
The housing sector, which is an important cyclical part of the economy, has also peaked for this expansion.
In summary, while headline retail sales remain strong, internals reveal signs of underlying weakness. By themselves, none of these indicators are signals to hit the panic button. They are just signs of a late cycle expansion.

Rising corporate stress

The corporate sector is another story. NIPA corporate profits have peaked for the current expansion and they are starting to roll over.
As well, the debt financing costs of corporations have bottomed for this expansion. Corporate bond yield bottoms have generally occurred ahead of past recessions.
The corporate sector has also re-levered its balance sheet to levels seen at past cycle peaks. The combination of consumer spending poised to turn down, peaks in corporate profits, and bottom in debt financing costs makes the companies vulnerable to a downturn.
Still, these are not reasons to hit the panic button just yet. They just represent a “this will not end well” investment thesis, with no obvious clues on timing.

An easy Fed

The one single factor that is still holding up the US economy is Fed policy. Despite the Fed’s professed desire to normalize rate, monetary policy remains loose. As the chart below shows, real money supply growth is falling but still positive. If history is any guide, nominal money growth has fallen below CPI inflation (black line) ahead of recessions in the past.
In addition, the yield curve has not inverted. An inverted yield curve has been a surefire signal of recession in the past. The possibility exists that the yield curve may not invert this time because of the Fed’s balance sheet normalization program. By the Fed’s own estimates, its QE programs flattened the yield curve by about 100 bp. The reversal of that program should have a steepening effect on the yield curve, and therefore this indicator may not be as effective recessionary signal as it had been in the past.
Financial conditions are not showing much signs of stress. This underscores New York Fed president Bill Dudley’s point that, as long as financial conditions are not stressed, the Fed should continue to normalize monetary policy.

Future Fed policy as wildcard

In effect, the future trajectory of Fed policy will be the wildcard for determining capital market returns. That is where a lot of policy uncertainty comes in.
It is said that the Trump administration will announce the nomination for the Fed chair in the next few weeks. By all accounts, Janet Yellen is unlikely to be re-appointed. The two front-runners are said to be Jerome Powell and Kevin Warsh. It appears that Donald Trump will look for three qualities in a Fed chair. In no particular order, they are:
+Deregulation bias
+Easy money bias
+Personal chemistry and loyalty 
No candidate is perfect and ticks off all the boxes. Kevin Warsh is well-connected and he is likely to score well on the “personal chemistry” criteria. and if anyone is able to offer Trump personal loyalty, it would be Warsh. He is the son-in-law of major Republican contributor and Estée Lauder heir Ronald Lauder. Warsh believes in aggressive deregulation of the financial sector, but his speeches reveal him to be a rules-based monetary hawk. Wall Street would view a Warsh appointment as a negative, as the consensus view is he has a history of being behind the curve on monetary policy. A Warsh Fed is likely to introduce a higher degree of volatility to the US economy. For more, see this devastating takedown of Warsh by Sam Bell.
By contrast, Jerome Powell is viewed as the compromise candidate. Jerome Powell is a Republican technocrat and unlikely to offer Trump his personal loyalty. He has shown himself to be mildly in favor of further deregulation. A Powell Fed would represent continuity with the Yellen Fed’s direction in monetary policy. The markets would view a Powell nomination as an equity bullish outcome.
Regardless of what happens, it is important to look behind the headlines of a Fed chair nomination. The Fed in 2018 is likely to be more hawkish than the Fed in 2017. As I pointed out last week (see Is 3% for 6 months enough to take equity risk?), not only is the Fed chair unknown, there are three vacant seats on the Fed’s Board of Governors out of a total seven seats. Virtually all Fed governor candidates favor rules-based approaches to monetary policy, which would put the Fed a more hawkish path than it is today. As well, the rotation of votes among regional Fed presidents indicate a more hawkish shift, from Evans and Kashkari to Meester and Williams. If you think that there is a gulf between the Fed’s dot plot and market expectations of monetary policy today, wait until the full composition of the FOMC is known.
If the Fed turns significantly more hawkish, that’s when investors should batten down the hatches. That will be the signal of an inflection point for the economy and the markets.

Nowcast vs. forecast

For investors, navigating a potential turning point like this is problematical. The nowcast of the economy, such as consumer confidence and retail sales, are bright, but leading indicators are deteriorating. I agree with New Deal democrat’s latest weekly assessment of economic conditions:
After several months of boring sameness, the weekly indicators are beginning to show a change in trend. The short leading indicators are literally ALL positive. Coincident indicators except for LIBOR are also all positive. The present and near future economy looks stronger than at any time I can recall during this entire expansion (although job growth is decelerating and wage growth is still paltry).
But enough of the long leading indicators (including monthly and quarterly ones) have deteriorated to neutral or even negative for me to downgrade the longer term outlook to neutral. The change in real M2 may prove ephemeral, as the oil-fired surge in inflation abates, But on the other hand, even nominally, M2 has been decelerating. As usual, I will remain entirely data driven.
As one example of upbeat nowcast condition, the most recent update of Q3 earnings season is positive. Even though 6% of index components have reported, John Butters at Factset pointed out that both the earnings and sales beat rates are well above historical averages, and forward 12-month EPS continues to rise.
That said, Butters also stated that “the market is not rewarding earnings beats”, which is a warning flag of investor psychology. In addition, the forward P/E is now 18.0. Combined with a headline CPI of 2.2%, the sum of the two violates Ed Yardeni’s “Rule of 20“, which states that the market is at risk of stalling when the sum of the two exceeds 20.

Possible melt-up and crash

CNBC recently reported that Ed Yardeni put the probability of a market melt-up, followed by a market crash at 55%. Such a scenario is well within the realm of possibility.
Here is what I am watching from both an intermediate term and shorter term basis. The US equity market has been buoyed by evidence of synchronized global growth, and it will be difficult for stocks to decline without signs of deterioration around the world. Past global equity tops have seen negative RSI divergences, which has not occurred.
If global stock markets were to make a cyclical top, the most likely scenario would see a correction, followed by a rally to test the old high or make a marginal new high which is unconfirmed by RSI. That pattern was evident even during the Tech Bubble melt-up. Current conditions show that while the index is overbought on RSI, we have not seen the first correction yet. So it’s far too early to panic.
At the same time, Callum Thomas of Topdown Charts observed that global market breadth is deteriorating. Keep in mind, however, that breadth deterioration is an inexact sign of a market top. It can take months for breadth to top out before the broader averages actually does.
In the shorter term, I pointed out that the combination of the SPX trading above its weekly upper Bollinger Band and overbought on RSI-14 made it vulnerable to a pullback (see Peak small cap tax cut euphoria?). Such corrections have been relatively mild, in the order of 2-5%. While the market remains overbought, and we have not seen the sell signal yet when the weekly RSI falls below 70. To be sure, the RSI indicator cannot stay elevated forever and a retreat can occur at any time.
Should the market continue to grind upwards and stay overbought, the melt-up and crash scenario comes into play. The sentiment backdrop for a major top is already in place. As a reminder, I have detailed extensively in the past how sentiment is getting overly froth with my series “Things you don’t see at market bottoms”.
My inner investor remains constructive on equities. Even though the trading model is flashing a buy signal, my inner trader is stepping aside as he does not believe the risk-reward is in his favor. He is waiting for market weakness to buy the dip.
PD1: El deporte favorito: criticar y juzgar…

¿Cómo hacer una crítica constructiva sin juzgar al otro?

Ayudar a los demás a mejorar su vida espiritual y personal, es una muestra del amor cristiano, de verdadera amistad y aprecio por quienes nos rodean

Uno de los mayores bienes que podemos prestar a quienes más queremos, y a todos, es la ayuda, en ocasiones heroica, de la corrección fraterna.
En la convivencia diaria podemos observar que nuestros parientes, amigos o conocidos -como nosotros mismos- pueden llegar a formar hábitos que desdicen de un buen cristiano y que les separan de Dios (faltas habituales de laboriosidad, chapuzas, impuntualidades, modos de hablar que rozan la murmuración o la difamación, brusquedades, impaciencias … ).
Pueden ser también faltas contra la justicia en las relaciones laborales, faltas de ejemplaridad en el modo de vivir la sobriedad o la templanza (gastos ostentosos, faltas de gula o de ebriedad, dilapidación de dinero en el juego o loterías), relaciones que ponen en situación arriesgada la fidelidad conyugal o la castidad…
Es fácil comprender que una corrección fraterna a tiempo, oportuna, llena de caridad y de comprensión, a solas con el interesado, puede evitar muchos males: un escándalo, el daño a la familia difícilmente reparable … ; o, sencillamente, puede ser un eficaz estímulo para que alguno corrija sus defectos o se acerque más a Dios.
Esta ayuda espiritual nace de la caridad, y es una de las principales manifestaciones de esta virtud. En ocasiones, es también una exigencia de la justicia, cuando existen especiales obligaciones de prestar ayuda a la persona que debe ser corregida.
Con frecuencia debemos pensar en cómo ayudamos a los que están más cerca. ¿Por qué no te decides a hacer una corrección fraterna? Se sufre al recibirla, porque cuesta humillarse, por lo menos al principio. Pero, hacerla, cuesta siempre. Bien lo saben todos.
La corrección fraterna tiene entraña evangélica; los primeros cristianos la llevaban a cabo frecuentemente, tal como había establecido el Señor -Ve -y corrígele a solas [Mt 18, 15]-, y ocupaba en sus vidas un lugar muy importante [Doctrina de los Apóstoles, 15, 13]; sabían bien de su eficacia.
Entre las excusas que pueden instalarse en nuestro ánimo para no hacer o para retrasar la corrección fraterna está el miedo a entristecer a quien hemos de hacer esa advertencia. Resulta paradójico que el médico no deje de decir al paciente que, si quiere curar, debe sufrir una dolorosa operación, y sin embargo los cristianos tengamos a veces reparos en decir a quienes nos rodean que está en juego la salud, ¡cuánto más valiosa!, de su alma.
Con la práctica de la corrección fraterna se cumple verdaderamente lo que nos dice la Sagrada Escritura: el hermano ayudado por su hermano, es como una ciudad amurallada [Prov 18, 19]. Nada ni nadie puede vencer contra la caridad bien vivida. Con esta muestra de amor cristiano no sólo mejoran las personas, sino también la misma sociedad. A la vez, se evitan críticas y murmuraciones que quitan la paz del alma y enturbian las relaciones entre los hombres.
La amistad, si es verdadera, se hace más profunda y auténtica con la corrección sincera. La amistad con Cristo crece también cuando ayudamos a un amigo, a un familiar, a un colega, con ese remedio eficaz que es la corrección amable, pero clara y valiente.

16 noviembre 2017

Emilio Ontiveros

Hay que leer todo lo que dice este buen hombre…
La reversión de las políticas monetarias excepcionales está cobrando carta de naturaleza. A los primeros pasos de la Reserva Federal (FED) se ha incorporado el pasado dos de noviembre el Banco de Inglaterra, días después de que el Banco Central Europeo (BCE) anunciara sus propósitos de reducir, a partir del año que viene, la cuantía de su programa de compra de bonos. La reacción de los mercados financieros a esas señales no ha sido precisamente adversa: ni en los de renta fija ni en los de variable se ha alterado la tónica de escasa aversión al riesgo. Los rasgos de esta inédita y delicada transición hacia la normalización monetaria merecen atención no solo por la ausencia de presiones inflacionistas destacadas, sino igualmente por la valoración alcanzada por la mayoría de los activos financieros.
No todos los bancos centrales mantienen la misma orientación al endurecimiento. El Banco Central de Brasil, el pasado 25 de octubre, redujo sus tipos desde el 8,25% al 7,5%, y también lo hizo esa misma semana él de Rusia, hasta el 8,25%. En Japón, el Consejo del Banco Central ha decidido la semana pasada mantenerlos, pero continuar comprando activos financieros en el mercado a un ritmo de 700.000 millones de dólares anuales. Pero salvadas estas excepciones, lo más relevante a efectos del análisis de la estabilidad financiera es lo que la Fed, el Banco de Inglaterra y el BCE puedan hacer en los próximos meses.
La Fed ha dejado claro que, tras las elevaciones de marzo y junio, debemos esperar otra el próximo diciembre. El Banco de Inglaterra lo hacía en su tipo de referencia, desde el 0,25% al 0,5%, el mismo día que también subía tipos por segunda ocasión en este año el Banco Central checo. Desde 2003, con Mervyn King como gobernador, el Banco de Inglaterra no había subido. Ahora ha sido bajo el mandato de Mark Carney cuando el Market Policy Committee (MPC) ha decidido romper esa larga tregua que concedió tras el referéndum por el Brexit, cuando recortó el base rate hasta dejarlo en el 0,25%.
En ambos casos, se trata de endurecimientos suaves y graduales, cuyo impacto sobre la actividad real no está siendo significativo, por el momento. Están siendo compatibles con los procesos de desendeudamiento en muchos países, y con la recuperación de la financiación hipotecaria. Las elevaciones que hasta ahora han tenido lugar apenas afectan a la remuneración de los activos y pasivos de las familias. En el Reino Unido, por ejemplo, entre hipotecas (el 40% de las vivas están a tipo variable) y crédito al consumo, el endeudamiento de las familias representa el 140% de la renta disponible, superior al 120% que representan sus ahorros. El efecto neto no debería ser importante, desde luego no tanto como las expectativas que las propias familias (cuyo consumo determina el 60% del PIB británico) se formen acerca de la evolución futura de esa política monetaria. Y, desde luego, las empresas pequeñas y medianas. Esto puede ser relevante, no solo en Reino Unido. Si, a pesar del gradualismo en el que insisten las comunicaciones de los bancos centrales, la desconfianza se instala en esos agentes, las decisiones del gasto en consumo e inversión podrían ralentizarse.
Las cautelas de los bancos centrales parecen influir en las decisiones de los inversores en los mercados financieros. Desde luego los de bonos. Si, en general, la deuda pública de la mayoría de los gobiernos parece hasta ahora indiferente a los acontecimientos geopolíticos, también los títulos de deuda privada, incluso los que incorporan mayor riesgo, dejan de cotizar escenarios peligrosos, ya sea en ese ámbito geopolítico o en el amparado en la evolución de la inflación. La semana pasada hemos verificado cómo los bonos europeos de peor calidad crediticia han alcanzado máximos de valoración: su rendimiento ha caído por primera vez por debajo del 2% en el índice específico ICE del Bank of America ML. Ese índice está compuesto de títulos de deuda emitidos por empresas con calificaciones crediticias de “grado especulativo”; es decir, inferiores al investment grade. Para que nos hagamos una idea, en enero de 2016, semanas antes de que el BCE extendiera el programa de compra de bonos a los emitidos por empresas, su rentabilidad (TIR) estaba en el 6,4%. Desde entonces, los inversores ávidos de rendimientos no han tenido más remedio que desplazar su demanda hacia activos de mayor riesgo, como esos junk bonds, en particular los calificados con un rating de “BB”, la mejor calificación de ese tipo de bonos.
Una situación que lógicamente está incentivando grandes emisiones, pero también añadiendo cierta inquietud sobre la estabilidad financiera. Se trata, en todo caso, de niveles de rentabilidad difíciles de justificar en términos de un estricto análisis del riesgo de solvencia y de liquidez, considerados “insanos”, que también abonan las críticas de aquellos que consideran excesivo el gradualismo del endurecimiento y que, desde hace tiempo, defienden el rápido abandono de los estímulos monetarios. Desde luego, por parte del BCE, principal objeto de las criticas amparadas en el hecho de que, tras su último anuncio, los “bonos basura” europeos cotizaran un rendimiento similar o, en algún caso inferior, a los del Tesoro estadounidense con vencimiento comparable.
Frente a esa impaciencia, la contundencia de los registros de inflación sigue avalando las cautelas de los bancos centrales. La variación de los precios sigue bajo control, en casi todos los casos por debajo del objetivo asumido como límite y seguirá estándolo probablemente durante los próximos años. A favor de la contención de los precios se encuentra el comportamiento moderado de la demanda de consumo, incluida la de bienes y servicios importados y la mayor competencia entre oferentes. Pero, también, esas visiones a largo plazo que anticipan el mantenimiento de la contención de los precios por la evolución demográfica y la extensión de las tecnologías digitales.
Un escenario, en definitiva, que sigue invitando al análisis cuidadoso, y a la no menos prudente gestión. Pero, también, a la necesidad de seguir revisando la permanencia de aquellas secuelas dejadas por la crisis reciente y su gestión.
PD1: Hay que pensar si nuestros hijos pueden ser felices de pertenecer a nuestra familia, porque tienen unos padres:
1.que les escuchan y les toman en serio;
2.que les quieren como son;
3.que se atreven a hacerse con ellos sus mismas preguntas;
4.que les ayudan a percibir, en las pequeñas realidades de la vida diaria, el valor de las cosas, el esfuerzo que requiere sacar adelante un hogar;
5.que saben exigirles;
6.que no tienen miedo de ponerles en contacto con el sufrimiento y la fragilidad, tan presentes en la vida de mucha gente, quizá empezando por la propia familia;
7.que les ayudan, con su piedad, a tocar a Dios, a ser «almas de oración»;
8.que les ayudan a crecer sanos y fuertes de corazón, para que puedan escuchar a Dios que dice a cada uno.

15 noviembre 2017

subida de tipos y retirada de estímulos

En diciembre, la FED subirá los tipos de interés otro escalón. Los mercados andarán muy condicionados por la estrategia de revertir los estímulos QE durante 2018, hasta ver como no hay ninguna ayuda de los bancos centrales…
In all the euphoria over yesterday's "dovish taper" by the ECB, markets appear to have forgotten one thing: the great Central Bank liquidity tide, which generated over $2 trillion in central bank purchasing power in 2017 alone - and which as Bank of America said last month is the only reason why stocks are at record highs, is now on its way out.
This was a point first made by Deutsche Bank's Alan Ruskin two weeks ago, who looked at the collapse in global vol, and concluded that "as we look at what could shake the panoply of low vol forces, it is the thaw in Central Bank policy as they retreat from emergency measures that is potentially most intriguing/worrying. We are likely to be nearing a low point for major market bond and equity vol, and if the catalyst is policy it will likely come from positive volatility QE 'flow effect' being more powerful than the vol depressant 'stock effect'. To twist a phrase from another well know Chicago economist: Vol may not always and everywhere be a monetary phenomena – but this is the first place to look for economic catalysts over the coming year."
He showed this great receding tide of liquidity in the following chart projecting central bank "flows" over the next two years, and which showed that "by the end of next year, the combined expansion of all the major Central Bank balance sheets will have collapsed from a 12 month growth rate of $2 trillion per annum to zero."
Shortly after, Fasanara Capital's Francesco Filia used this core observation in his own bearish forecast, when he wrote that "the undoing of loose monetary policies (NIRP, ZIRP), and the transitioning from 'Peak Quantitative Easing' to Quantitative Tightening, will create a liquidity withdrawal of over $1 trillion in 2018 alone. The reaction of the passive community will determine the speed of the adjustment in the pricing for both safe and risk assets."
Fast forward to today, when Bank of America's Barnaby Martin is the latest analyst to pick up on this theme of great liquidity withdrawal.
Looking at (and past) the ECB's announcement, Martin writes that "as expected, Mario Draghi took a knife to the ECB's quantitative easing programme yesterday. From January 2018, monthly asset purchases will decline from €60bn to €30bn, and continue for another 9m (and remain open ended). The ECB now joins an array of central banks across the globe that are either shrinking their balance sheets or heavily scaling back bond buying."
So far so good, and in itself, this structural tightening when coupled with the open-ended nature of the ECB's taper was ultimately perceived as very dovish for markets, sending not only the EUR plunging over 200 pips in the past 2 days, but sending Eurozone yields jumping, as the ECB telegraphed it was very much uncertain when, and if, it would truly be able to untangle itself from QE, especially since the ECB still can increase the 33% limit on bond purchases if needed be after 2018 to return back to a quantitative easing paradigm, one which may well include the direct purchase of equities and ETFs, as in the case of the SNB and BOJ.
Furthermore, as Martin adds, heading into the ECB decision "the market had a warm reception for yesterday's big QE cut: 5yr bund yields declined 5bp, European equities finished the day up 1.3% and iTraxx credit spreads ended 2bp tighter. In fact, we think markets were very relaxed heading into yesterday's landmark decision. Chart 2 shows that European rates volatility reached an all-time low of 33.2 towards the end of last week. Such was the market's comfort with the notion that Draghi would offset the drop in QE with heavy doses of forward guidance…and he indeed delivered lots on this front yesterday"
However, as Ruskin and Filia warn, Martin underscores that it is the bigger point that is ignored by markets, namely that it is all about the "flow" of central bank purchases. And in this context, the BofA strategist warns that it will take just over a year before the global liquidity tide not only reaches zero, but turns negative... some time in early 2019.
Chart 1 shows year-over-year changes in global asset purchases by central banks (we also include China FX reserves here). Given this year's slowdown in ECB and BoJ QE (the latter, in particular, is striking in USD terms), we are well past the peak in global asset buying by central banks. But with the Fed now embarking on balance sheet shrinkagethe start of 2019 should mark the point where year-over-year asset purchases finally turn negative - a trend change that will come after four straight years of expansion.
Still, despite virtually every strategist on Wall Street being familiar with this chart, few if any want to believe it. In fact, the favorable reception to what is fundamental a tightening shift by the ECB poses what Martin notes, is a the big risk to corporate bond markets, "for as long as the ECB's message on rates is dovish, the incessant inflow story into European credit is unlikely to die. And big inflows mean "overwhelming" credit technicals would persist for the foreseeable future (see chart 3 below). Thus, credit bubbles become a legitimate risk down the line."
To be sure, there is just one event that could end this hypnotized paralysis: inflation, which however stubbornly refuses to emerge, which is why "the market seems to have dismissed the idea that inflation could surprise to the upside" However, "should it rise quicker than expected, we sense the dovish rhetoric from central banks would quickly change. And we believe that this may be all that's needed to snuff out the great "reach for yield" trade that is currently gripping European corporate bonds."
And therein lies the rub: will inflation finally appear and prevent the world's biggest asset bubble from becoming even bigger, or - as Eric Peters warned two weeks ago - will the "Nightmare Scenario" for the Fed emerge, and even as asset prices rise ever higher, inflation remains dormant:
If we don't see a sustained cyclical jump in wages, then yields won't go up. And if yields don't go up, then the asset price ascent will accelerate... Which will lead us into a 2018 that looks like what we had expected out of 2017; a war against inequality, a battle for Main Street at the expense of Wall Street, an Occupy Silicon Valley movement. Then you'll have this nightmare for the next Federal Reserve chief, because they'll have to pop a bubble.
In conclusion, we go back to the person who first observed the dramatic shift in central bank flow, Citi's Matt King, who had this to say:
To us, QE flows (i.e. marginal net purchases) rather than the stock of central bank holdings are the more important driver of asset prices. As we noted recently, if all major European investor types are already net selling or at least not buying € FI securities at prevailing market prices, then why should they stop or even start buying when the safety is withdrawn? Unless you have an emphatic answer, then with ECB QE falling by at least €500bn next year, according to our economists, and the Fed reducing its holdings of securities by almost $500bn at the same time, it would perhaps be best to tread cautiously.
PD1: Esto dice Morgan Stanley:
As increasingly more analysts and Fed-watchers have suggested in recent months, the one catalyst that could send the market into a tailspin is for the Fed to get what it has so long wanted: a sudden spike in inflation. From Albert Edwards (who looks at record U.S. vacation plans as an ominous sign of rising wages), to Eric Peters (who warned that pent up inflation could unleash a "nightmare scenario" for the next Fed chair), to Aleksandar Kocic (who yesterday explained why the market is vulnerable to bear steepening of the curve with the Fed "massively negatively convex to inflation risk"), on Sunday Morgan Stanley's chief cross-asset strategist, Andrew Sheets joins the warning and observes that at a time when things are finally starting to look up for the global economy, "this puts central banks in a challenging position. Inflation remains below target. But current policy means some of the easiest financial conditions ever observed, just as growth is picking back up, regulation is backing down and memories of the last crisis fade."
As a result, Sheets believes that "current policy rates and financial conditions look unsustainably easy relative to the strength of global growth." Which means that the response is once again in the hands of Central banks, who hold the key to determining when to push back. "If they do, asset prices face a severe challenge" Morgan Stanley warns, but maybe not yet: "until they do, we should be willing to accept that prices can persist above 'fair value'."
Andrew Sheets' full note is below:
With rates low and central banks taking great care to avoid surprises, the question isn't why many assets are expensive. It's why they aren't richer. Since the financial crisis, easy policy has been balanced by four powerful counterweights. All now appear to be shifting, opening the door to more volatile late-cycle behaviour.
It's easy to talk loosely about 'loose policy' and 'easy money'. So let's be specific. When rates sit below the level of inflation, borrowing to buy almost anything makes financial sense. It's true for a toaster or a house or a company, and that's exactly the point; easy policy aims to stimulate and bring forward depressed demand.
And boy do we have easy policy. The G4 policy rate (GDP-weighted) is 150bp below the rate of inflation. G3 central banks hold ~US$14 trillion of assets, compared to ~US$3 trillion pre-crisis. And that's set to keep increasing through 3Q18, even as the Fed's balance sheet starts to shrink.
But it's not just that policy is easy. It's also highly predictable. Qualitatively, the Fed, ECB, BoJ and BoE have gone to great lengths to communicate policy aims and changes well in advance. Quantitatively, implied volatility on interest rates (a proxy for the uncertainty in policy) is near all-data lows.
1.Fiscal tightening: The US, UK, eurozone and Japan all tightened fiscal policy in the aftermath of the Great Recession, despite still-wide output gaps. This rejection of Keynes countered the simulative effects of monetary policy, and certainly contributed to the sluggish nature of the post-crisis recovery.
2.Regulation: The crisis exposed huge shortfalls in risk management and capitalisation, and in the aftermath lawmakers (globally) moved to address both aggressively. Stress tests were introduced, leveraged lending was discouraged and tighter rules were placed on securitisation. All discourage risky behaviour, despite the presence of low policy rates.
3.'Scars of the crisis': Not all financial regulation came from government bodies. Some of it, we'd venture, was self-imposed. The crisis crushed optimists, rewarded pessimists and created emotional and financial scars that weren't going to heal quickly. While harder to quantify, we think that this contributed to a level of corporate and financial timidity despite exceptionally low policy rates.
4.Low nominal growth: Tighter fiscal policy, financial deleveraging and corporate investment caution all helped to push global growth to levels that left little room for error. From 2011-15, global growth hovered around 2%Y, and lacked synchronicity, with DM initially struggling while EM did better, and then vice versa. If growth is weak (and people expect it to remain so), low rates can lose much of their power.
All of those 'checks' are starting to fall, at the same time. G4 fiscal tightening is becoming fiscal easing (US tax cuts at this level of unemployment have little precedent, and our UK economists expect looser spending in the autumn budget). Financial institutions are now well-capitalised and regulation (broadly speaking) has stopped tightening. The scars of the crisis are fading, as more investors wade back into previously off-limits asset classes. And global growth is humming, with our economists seeing the strongest levels since 2010.
This puts central banks in a challenging position. Inflation remains below target. But current policy means some of the easiest financial conditions ever observed, just as growth is picking back up, regulation is backing down and memories of the last crisis fade.
What's the takeaway? We focus on four:
+Current policy rates and financial conditions look unsustainably easy relative to the strength of global growth. Central banks hold the key to determining when to push back. If they do, asset prices face a severe challenge. But until they do, we should be willing to accept that prices can persist above 'fair value'.
+Markets, oddly, don't see this dynamic as unsustainable, and imply easy and predictable G4 policy to persist for years. Our rates strategists believe this provides medium-term support for US 2s30s flatteners, given a view that the Fed will hike more than the market is pricing, and selling the MBS basis, which is exposed to very low levels of rate volatility. Conversely, the recent EMFX sell-off looks outsized relative to G4 rate expectations, and our strategists see an opportunity to buy local rates in Indonesia, Colombia and Hungary.
+Extraordinary stimulus, with fewer breaks against it, increases the chance of a 'boom/bust' environment. In equities, we think this makes stock replacement attractive (replacing index with calls), given low volatility and a steep skew. Cross-asset, we think this favours long equities versus credit.
+Higher oil prices would represent a tightening of financial conditions outside of central bank control. We are OW energy in the US and Europe, and think the sector has attractive diversification for this risk scenario.
PD2: Y así se ve desde España:


La actuación de los bancos centrales, interviniendo en los mercados de bonos e inyectando liquidez, ha condicionado y seguirá condicionando la evolución de los distintos mercados financieros. La Reserva Federal (Fed) ha marcado el paso de las decisiones a tomar tanto en la fase de expansión monetaria como en la fase de posterior de vuelta a la normalidad monetaria.
Primero redujo los tipos de interés a cero. A diferencia del BCE, la Fed no cometió el error histórico de situar los tipos de interés en negativo (algo que se estudiará en los libros de historia económica).
Posteriormente, aplicó sucesivos programas de compra de bonos soberanos y privados (QE: Quantitative easing).
Bernanke, el anterior gobernador de la Fed, anunció en mayo de 2013 que en algún momento dejaría de incrementar su balance comprando bonos, reduciendo paulatinamente el volumen de compras. En enero de 2014 comenzó el "tapering" o reducción del volumen de compra de bonos mensual. Las compras finalizaron nueve meses después.
Una vez finalizados los distintos programas de compra de bonos, la Fed ha continuado reinvirtiendo en compra de bonos los importes correspondientes a los bonos mantenidos en cartera que vencen. De esta forma, durante casi tres años el balance de la Fed se ha mantenido estable a pesar de no estar en funcionamiento ningún programa de compra de bonos (QE).
Hace ya un año la Fed comenzó a subir de forma muy paulatina y controlada los tipos de interés. A pesar de que la propia Fed estima que subirá una vez más los tipos de interés este año, tres veces en 2018 y otras tres subidas en 2019, el mercado apenas descuenta dos subidas en el periodo de los próximos dos años.
Finalmente, a partir de este mismo mes de octubre la Fed dejará de reinvertir bonos vencidos por importe de 10.000 millones de dólares al mes incrementando la cifra en otros 10.000 millones de dólares adicionales cada trimestre hasta alcanzar un nivel de 50.000 millones al mes al final de 2018. Simplemente la no reinversión de bonos a su vencimiento hace que el balance de la Fed se vaya a reducir en los próximos años.
El Banco Central Europeo ha ido por detrás de su homólogo estadounidense desde el principio de la crisis, pero con un cierto decalaje sigue los mismos pasos. Por tanto, es fácil estimar cuáles serán las decisiones futuras de la autoridad monetaria de la Eurozona.
El BCE tardó más en bajar los tipos de interés. De hecho, cometió el error de subirlos en 2008 y 2011. Finalmente, ha llegado a situar los tipos de interés a corto plazo en negativo. Algo económicamente difícil de justificar.
El BCE comenzó mucho más tarde los programas de inyección de liquidez, primero a través de "barra libre" de liquidez (LTRO) para que fuesen los bancos quienes compraran los bonos soberanos, y más tarde, desde marzo de 2015, comprando él mismo los bonos soberanos y posteriormente corporativos.
Ahora, el BCE acaba de anunciar que continúa con la compra de bonos, pero reduciendo el volumen de adquirido cada mes: 30.000 millones de euros al mes de enero a septiembre en lugar de los 60.000 millones mensuales actuales.
En algún momento del próximo año anunciará que deja de adquirir bonos. Aun así, ya ha dejado claro que seguirá reinvirtiendo el importe correspondiente a los bonos en cartera que venzan. De esta forma se mantiene el tamaño de su balance: la liquidez no aumentará, pero tampoco se reducirá.
Llegados a ese punto, comenzará el proceso de vuelta a la normalidad monetaria.
En algún momento subirán los tipos de interés, aunque el propio BCE augura que esto no sucederá por un periodo prolongado de tiempo posterior al fin de las compras. (The Governing Council continues to expect the key ECB interest rates to remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases). Por lo tanto, no son esperables subidas de tipos hasta bien entrado 2019.
Aunque quede lejano en el tiempo, en algún momento el BCE dejará de reinvertir gradualmente el importe de los bonos vencidos. Quedan años para que esto suceda, pero acabará sucediendo al igual que ya ocurre en EE.UU.
El camino a la normalización monetaria será largo y no está exento de posibles pasos atrás y más inyecciones de liquidez si la economía se tuerce o ante la eventualidad de un shock imprevisto. La digestión de esta normalización por parte de los mercados financieros no será fácil. La complacencia de los mercados no durará eternamente, como tampoco lo hará la política expansiva del BCE
PD3: El Papa Francisco ha admitido que a veces se quedaba dormido mientras reza, al tiempo que aseguraba que es una de las muchas maneras de "santificar el nombre de Dios". "Yo también cuando rezo, a veces me duermo", dijo sonriendo el pontífice argentino en una entrevista. "Santa Teresa del Niño Jesús dijo que ella también lo hizo y que le agradó a Dios", agrega antes citando un salmo que llama al creyente a "estar delante de Dios como un niño en los brazos de su padre". "Esta es una de las muchas formas de santificar el nombre de Dios, de sentirme como un niño en sus brazos", dice el Papa, sugiriendo que no hay mejor lugar para quedarse dormido.