Que la bolsa estadounidense
está muy alta y sin purgar, que el crecimiento esperado es más bajo, que las
rentabilidades de los bonos largos sigue subiendo y supera ya los 3,25%, que
las FANG ya no molan tanto, que Trump arremete contra la FED… Que las bolsas
están muy apalancadas con crédito al mercado, más que nunca y en cuanto hay un
revés como el de ahora, se amplifica… Y se trata de sujetar el mercado con recompras
de acciones para amortizarlas, y esto tiene un límite…
Y en Europa, Italia plantea un
déficit público excesivo, y se lleva por delante a la prima de riesgo que anda
ya por los 320 pb. Que España presenta unos Presupuestos Generales denigrantes,
imposibles de cumplir, luego tendremos más déficit y más deuda pública…
España tienen que emitir
220,000 millones de euros de deuda en 2019. Después de terminar el programa de
compra de bonos soberanos por el BCE. ¿Alguien cree que se colocarán a los
tipos actuales? Imposible la bajada de 3 puntos deuda que dicen los
Presupuestos presentados…
Que nuestra prima de riesgo iba
tranquilita dado que el BCE todo lo compraba, pero ya sabemos que a partir de
enero se acaba el chollo, y ahora se contagia con la italiana. Que nos
gobiernan los socialistas en unión con los comunistas de Podemos (se suelen
decir que son populistas o antisistema, pero de verdad creo que son marxistas),
aunque aquí nos hayamos acostumbrado, los guiris les deben ver como muy
peligrosos. Que los bancos sigue de capa muy caída, ahora les toca pagar los
Actos Jurídicos Documentados y se desmoronan más si cabe…
Chris
Wood
There have recently been some dramatic
moves in America’s bond market where the US Treasury bond market broke through
a 37-year trend line on the upside in yield terms when the 10-year Treasury
bond yield rose above the 3% level (see following chart). It is now 3.16%.
US 10-YEAR TREASURY BOND YIELD (LOG SCALE)
Source: Bloomberg
The ostensible trigger for the bond
sell-off was a strong non-manufacturing ISM number which rose to the highest
level since 1997.
But whatever the precise catalyst, the
bond sell-off is potentially of enormous significance since the breaking of a
trend line of declining Treasury bond yields in place since 1981 is, on the face
of it, marking the end of an extremely benign era for financial assets.
THE STEEPENING US YIELD CURVE POINTS TO FED RATE HIKES
From a more near-term perspective, the
renewed steepening of the US yield curve also raises the potential for a
greater number of Fed rate hikes than currently envisaged by the markets. The
spread between the 10-year and 2-year Treasury bond yields has risen from a
recent low of 19bp reached in late August to 31bp (see following chart). That,
in turn, raises
the probability of more casualties in Asia and emerging markets from the current Fed tightening
cycle. Oil’s
continuing strength also means that, in many respects, Asian economies are more
vulnerable as oil consumers than many other parts of the emerging world.
US YIELD CURVE (10Y-2Y TREASURY BOND YIELD
SPREAD)
Source: Bloomberg
DECLINING MONEY SUPPLY
The impact of this US monetary tightening,
which combines both rising interest rates and ongoing Federal Reserve balance
sheet contraction, can be seen clearly in declining money-supply growth in
America.
US M2 growth has slowed from 7.5%YoY in
October 2016 to 4%YoY in September (see following chart). Still, there is
considerable evidence that the squeeze
on US-dollar funding has been much greater offshore than
in America because of another bullish consequence of tax reform for American
corporates and indeed for the American economy and stock market this year. That
is the increased incentive provided by the Trump administration’s tax reform to
repatriate the estimated US$3 trillion held by US corporates offshore.
US M2
GROWTH
Source: Federal Reserve
There is no precise way of measuring this
inflow, but the data suggests significant repatriation has taken place this
year. The latest American balance of payments data provides some interesting
insight on this point. It shows that US corporates’ direct investment dividend
income receipts, which measure earnings of foreign affiliates repatriated to
the parent company in America in the form of dividends, surged from US$82
billion in 2H17 to US$464 billion in 1H18.
While reinvested earnings in foreign
affiliates declined from US$167 billion in 2H17 to a negative US$210 billion in
1H18, meaning repatriation of dividends has exceeded current-period earnings (see following chart). To make the
repatriation point crystal clear, the Bureau of Economic Analysis stated in its
balance of payments announcement in September:
The large magnitudes for dividends and
withdrawals and the negative reinvested earnings reflect the repatriation of
accumulated earnings by foreign affiliates of US multinational enterprises to
their parent companies in the United States in response to the 2017 Tax Cuts
and Jobs Act (TCJA).
US DIRECT INVESTMENT INCOME RECEIPTS:
DIVIDENDS AND REINVESTED EARNINGS
Source: US Bureau of Economic Analysis –
International Transactions Accounts
REPATRIATION AND SHARE BUYBACKS
The same repatriation effect is also
suggested by the decline in Treasury bond holdings in low-tax jurisdictions
such as Ireland, Switzerland, the Netherlands, Bermuda, and Bahamas. Thus,
Treasury securities holdings in these jurisdictions have declined by US$52
billion in the first seven months of this year, according to the Treasury
Department’s Treasury International Capital (TIC) System data (see following
chart).
Repatriation is also suggested by the
continuing surge in American corporates’ share buybacks which some Wall Street
pundits are now suggesting could reach as much as US$1 trillion this year. S&P500 companies’ actual share
buybacks surged by 59%YoY to a record US$190.6 billion in 2Q18, following
US$189 billion of buybacks in 1Q18 (see following chart).
HOLDINGS OF US TREASURY SECURITIES BY LOW
TAX JURISDICTIONS
Note: Include Ireland, Switzerland, the
Netherlands, Bermuda and Bahamas. Source: US Treasury – Treasury International
Capital (TIC) System
S&P500 SHARE BUYBACKS
Source: S&P Dow Jones Indices
So far the market reaction to this US
monetary tightening cycle has been classic in the sense that the fringe areas
have succumbed first, starting with cryptocurrencies and then moving into emerging
markets and Asia. The obvious risk at this juncture, with the Fed still
committed to tightening and with money markets still assuming 75bp more of rate
hikes in this cycle, is that the American stock market looks increasingly like
the “last man standing”.
And indeed it has now begun to correct,
with the S&P500 declining by 7.2% from its peak as of 11 October (see
following chart). Certainly American equity valuations are the highest among
major regions in the world, though forward multiples have reduced from last
year as a result of the tax-driven earnings surge. The S&P500 12-month
forward PE has declined from a peak of 18.8x in January to 16x (see following
chart).
S&P500
Source: Bloomberg
S&P500 12-MONTH FORWARD PE
Source: Datastream, IBES
THE BOTTOM LINE FOR THE US ECONOMY
The issue now remains whether US cyclical
momentum, in terms of both earnings and GDP growth, is peaking. The base case
here remains that cyclical momentum has probably peaked, but that America is more likely to slow back
to the trend real GDP growth rate of 2.2% prevailing since 2009 prior to the
tax cut than enter an outright recession. And that any
such renewed slowdown is likely to lead to a stepped-up effort by Donald Trump
to implement his infrastructure agenda in the second half of his
administration; though the practical ability to do that will be influenced
significantly by the outcome of the November mid-term elections.
Meanwhile, America is unlikely to face an
outright recession, as opposed to a slowdown to trend growth, without the
negative catalyst of a financial shock. And this financial
shock will need to be reflected in a surge in credit spreads. In this respect, anyone
investing in equities by tracking money supply growth will have sold too early,
since US money supply measures have been trending down since 4Q16. Rising credit spreads, however, are
the signal that monetary tightening is hitting the real world and that it has
become time to sell. And the more the Fed tightens, the bigger the risk of such
a shock.
This raises the question of where the
private-sector borrowing has been in this cycle. The answer at the macro level
is that the US corporate sector has increased debt while the household sector
has reduced it, relative to GDP. Thus, nonfinancial corporate debt as a
percentage of GDP has risen from a low of 39.7% at the end of 2010 to a record
46.2% in 2Q18, while the household debt to GDP ratio has declined from a peak
of 98.4% in 1Q08 to 75.4% in 2Q18, the lowest level since 2Q02 (see following
chart).
US NON-FINANCIAL CORPORATE DEBT AND
HOUSEHOLD DEBT AS % OF GDP
Source: CLSA, Bureau of Economic Analysis,
Federal Reserve
It is also the case that much of this
corporate debt has been extended in this cycle outside the highly regulated
banking system, as can be seen in the continuing relatively sluggish growth in
American banks’ commercial and industrial (C&I) loans.
C&I loan growth was 5.2%YoY in early
October. Still, that does not mean that there has been no borrowing. There are
estimates of around US$3 trillion of speculative-grade floating rate corporate
debt in America of which over US$1 trillion are so-called “leveraged loans”,
many of them “covenant-lite” loans.
Many of these loans have been pooled
together in tranches and bought by so-called credit funds, which are the fixed-income
appendage of the booming private-equity fund industry.
US BANKS’ COMMERCIAL AND INDUSTRIAL
(C&I) LOAN GROWTH
Source: Federal Reserve
A problem in the above area or another one
is the sort of shock that can trigger a risk-off move in markets and a Fed
U-turn, in terms of monetary policy. This is because surging credit spreads
raise the risk of an asset deflation cycle since they indicate forced
deleveraging. And
it is a decline in asset prices, not conventional “overheating” concerns, which
is the biggest risk to the American economy and indeed the world economy, given
that asset inflation has been the prime driver of growth in the developed world
since the global financial crisis 10 years ago on the back of such a long
period of ultra-easy monetary policy.
Abrazos,
PD1: Cuando practicamos el
bien, pensamos que lo hacemos por el prójimo, pero realmente también lo hacemos
por Cristo: «Os aseguro que todo lo que hicisteis por uno de los más pequeños
de estos mis hermanos, a mi lo hicisteis» (Mt 25,40). Y mi prójimo, dice
Benedicto XVI, es cualquiera que tenga necesidad de mí y que yo pueda ayudar.
Si cada uno, al ver al prójimo en necesidad, se detuviera y se compadeciera de
él una vez al día o a la semana, la crisis disminuiría y el mundo sería mejor.
«Nada nos asemeja tanto a Dios como las obras buenas» (San Gregorio de Nisa).
