En todas partes cuecen habas… Nos desesperamos de ver como nuestros doble déficit (público y exterior) nos corroe, pero cuando miramos a otros, vemos que tienen un problema muy similar, aunque su economía es de referencia y la nuestra de chichinabo…
On a rolling 12-month basis, the federal budget deficit hit a peak of almost $1.5 trillion in February 2010. From that dizzying height of just over 10% of GDP it fell steadily for six years, hitting a low of $402 billion last February, a mere 2.3% of GDP. It's unlikely to get any lower than that, unfortunately, unless and until we see stronger economic growth and/or significant reform to entitlement programs. For the foreseeable future, the budget deficit is likely to get bigger; it's already jumped to just over $500 billion as of last month. There are several culprits: weaker economic growth, weaker tax collections, and a pickup in spending.
The chart above shows the nominal level of federal spending and revenues on a rolling 12-month basis. Note that spending was flat from mid-2009 through last year, but is now on a clear uptrend. At the same time, it appears that the strong uptrend in tax revenues, from early 2010 through early last year, is fizzling out. Two virtuous trends have reversed.
The chart above shows the level of federal spending and revenues as a percent of GDP. Note how both have been trendless over long periods.
It's time for policymakers to revisit Hauser's Law: there is a limit to how much tax revenue can be extracted from the private sector, and we are now approaching that limit. Tax rates have risen in the past year or so, but tax collections have weakened. Raising taxes—as both Clinton and Sanders are proposing—will almost surely fail to close our current and projected budget gap, because higher rates will discourage work and investment, while encouraging more tax evasion.
As the chart above shows, the weakness in tax collections is concentrated in individual and corporate income tax collections—both of which are driven by weaker profits—while payroll tax collections are rising at a 4% rate that is commensurate with the ongoing rise in payrolls and wages.
The first of the two charts above shows the nominal level of federal budget surpluses and deficits, while the second shows the level as a % of GDP. There's nothing necessarily scary here, since it will be awhile before the deficit rises meaningfully relative to GDP. The larger message is that the budget deficit is going to be returning to the headlines before too long, and politicians who fail to understand Hauser's Law will mistakenly call for a fix in the form of higher tax rates. The correct fix, of course, would be to reduce tax rates, simplify the tax code, and reform entitlement programs in order to keep spending under control.
Y todo esto acaba en papelitos, eso que tan bien conocemos en España:
Abrazos,
PD1: Es por esto por lo que la FED no puede ni plantearse que bajen las bolsas:
With the ECB now unabashedly unleashing a bond bubble in Europe of which it has promised to be a buyer of last resort with the strongly implied hint that European IG companies should issue bonds and buy back shares, and promptly leading to the biggest junk bond issue in history courtesy of Numericable, it will come as no surprise that the world once again has a debt problem.
For the best description of just how bad said problem is we go to SocGen's Andrew Lapthorne, one of last few sane analyzers of actual data, a person who first reveaked the stunning fact that every dollar in incremental debt in the 21st century has gone to fund stock buybacks, and who in a note today asks whether "central bank policies going to bankrupt corporate America?"
His answer is, unless something changes, a resounding yes.
Here are the key excerpts:
Sensationalist headlines such as the one above are there to grab the reader’s attention, but the question is nonetheless a serious one. Aggressive monetary policy in the form of QE and zero or negative interest rates is all about encouraging (forcing?) borrowers to take on more and more debt in an attempt to boost economic activity, effectively mortgaging future growth to compensate for the lack of demand today. These central bank policies are having some serious unintended consequences, particular on mid cap and smaller cap stocks.
Aggressive central bank monetary policies have created artificial demand for corporate debt which we think companies are exploiting by issuing debt they do not actually need. The proceeds of this debt raising are then largely reinvested back into the equity market via M&A or share buybacks in an attempt to boost share prices in the absence of actual demand. The effect on US non-financial balance sheets is now starting to look devastating. We’re not the only ones to be worried. The Office of Financial Research (OFR), a body whose function is to assess financial stability for the US Treasury, highlights corporate debt issuance as their primary threat to financial stability going forward.
In our assessment, credit risk in the U.S. nonfinancial business sector is elevated and rising, and by more than depicted in the Financial Stability Monitor. The evidence is broad. Credit growth to the sector has been rapid for years, pushing the ratio of nonfinancial business debt to GDP to a historically high level. Firm leverage is also at elevated levels. Creditor protections remain weak in debt contracts below investment grade. These factors are consistent with the late stage of the credit cycle, which typically precedes a rise in default rates.
The reality is US corporates appear to be spending way too much (over 35% more than their gross operating cash flow, the biggest deficit in over 20 years of data) and are using debt issuance to make up the difference. US corporates will have to borrow over 2.5% of their market capitalisation (over $400bn each year) to, somewhat ironically, buy back their own stock.
This cash flow deficit then needs to be financed, hence the continuing need to raise more and more debt. Current spending implies US non-financials will have to raise another $400bn of debt, a large proportion of which would then be reinvested back into the equity market via share repurchases. Some consider this to be shareholder return, while others (ourselves included) see it as simply remortgaging shareholder equity in an attempt to boost short-term share price performance. This in our view is short-term irrationality.
No matter where you look or how you measure it, leverage is elevated and continues to rise to unusually high levels given where we are in the cycle, with the most worrying rise in small cap stocks’ debt levels. Looking at interest cover is not particularly reassuring either, with the weighted interest coverage ratio approaching the recent low of 2009 when EBIT was depressed and not that far off the 1998/2003 levels when corporate bond yields were significantly higher.
The catalyst for a balance sheet crisis is rarely the affordability of interest rates, so a 25bp rise in Fed rates is neither here nor there. Credit market risk is about assessing the likelihood of getting your money back. As such asset prices (i.e. equity markets) and asset price risk (i.e. equity volatility) are far bigger concerns. So all you need for a balance sheet crisis is declining equity markets, a phenomenon the Fed appears desperate to avoid. Now we know why (see chart below).
Well that, and another reason: as of this moment one can measure the daily credibility of central banks by whether stocks closed higher or lower; too low and everyone starts talking about how CBs no longer have credibility and how they would rather Yellen et al would stop micromanaging everything... and then everyone quiets down when stocks surge back to all time highs. Alas, this means that the markets have not only stopped being a discounting mechanism (or rather they only discount what central banks will do in the immediate future), but have also stopped reflecting the underlying economy a long time ago, something will remains lost on all of the "smartest people in the room."
PD2: La inflación de EEUU empieza a mirarse con lupa:
Y sin energía, la inflación subyacente ha tenido dos shocks, cuando se movía el petróleo:
Su inflación subyacente se le disparado ya por encima del 2% y se esperan subidas de tipos, con el perjuicio que esto supone para los beneficios empresariales y para la financiación de sus déficits…
Mira los datos:
Son las consecuencias de imprimir dinero, de crearlo de la nada, pero no a todos los países con políticas monetarias expansivas les llega la inflación…
Y a su vez, el crecimiento REAL de su economía es muy bajo:
Y no son sólo los problemas monetarios los que tienen:
Con problemas en su sector exterior:
Y menores expectativas de beneficios empresariales…
Retail sales débiles:
PD3: "Ser cristiano no significa pertenecer a una cierta cultura, sino unir cada momento de nuestra vida a Jesús", Papa Francisco.
